“I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions? Then you will find your doubts and your self melt away.” One of the last notes left by Mahatma Gandhi in 1948, expressing his deepest social thought. Source: Mahatma Gandhi [Last Phase, Vol.II (1958), p.65]

“The service of India means, the service of the millions who suffer. It means the ending of poverty and ignorance and poverty and disease and inequality of opportunity. The ambition of the greatest man of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and suffering, so long our work will not be over.” Jawaharlal Nehru Speech in the Constituent Assembly of India, on the eve of India’s Independence, August 14th, 1947.

PREFACE This is the final report of the National Commission for Enterprises in the Unorganised Sector, which was set up by the Government of India on 20th September 2004, to "review the status of unorganized/informal sector in India including the nature of enterprises, their size, spread and scope, and magnitude of employment," This was the first step taken towards fulfilling the commitment of the new UPA government to ensure "the welfare and well-being of all workers, particularly those in the unorganized sector, who constitute more than 93% of our workforce". 2. During the four and a half year of its existence, the Commission examined in detail all the literature and statistical evidence that exists on this sector, held numerous consultations with different stake-holders, such as government officials and policy makers at the Centre and in the States, trade unions and associations of workers representatives, civil society organizations, academics and experts. The Commission has already produced nine reports in addition to submitting a number of proposals on selected issues such as global economic crisis and the informal economy, SEZs and National policy on Street Vendors apart from a number of working papers. The whole set of reports of the Commission and papers are available on the Ministry of MSME's website. We hope all of them will be examined carefully by scholars and interested individuals and policy-makers in the coming future. 3. Many of the recommendations of the Commission have already been acted upon by the Government. A number of others are in advanced stage of examination by the policy makers. The remaining recommendations, the Commission hopes will be examined by the new government. The Commission is of course very grateful to the UPA government, especially to the Prime Minister, Dr. Manmohan Singh, who not only set up this Commission and gave it all the facilities to carry out its exercises but also participated in collective examination of its recommendations at different stages. All along, the Prime Minister himself took active interest in the

vi

work of this Commission, which would not have been completed without his advice and encouragement. The Prime Minister, who was primarily responsible for bringing about a paradigm shift of Indian economic policies responsible for India's high rate of growth of the recent period, has been very conscious of the need for transforming the unorganised sector to bring about a proper inclusive development. All the Commission's Members individually or collectively had many occasions of discussing these issues with him personally. They all wish to record their appreciation of the Prime Minister for his support of the Commission's work. 4. This final report on "The Challenge of Employment in India : An Informal Economy Perspective" is now presented as an overarching report based on all the earlier work of the Commission, to provide a perspective and strategy for expanding employment in India. The Commission is completing its term on 30th April 2009, with a sense of satisfaction that it has been able to work out a most comprehensive report on the unorganized sector in India, based on a meticulous examination of the unit level statistical evidence and survey of all the literature. Chapters 2, 4, 6 and 15 are the most crucial Chapters of this rather voluminous report, covering comprehensively all the issues related to the unorganized sector. 5. In the following paragraphs of this preface, we present what may be considered as the main focus of our argument. The Indian economy has been on a sustained path for economic growth since the early 90s' when economic reforms were introduced in this country. We concentrated on the records of the 10 years from 1993-94 to 2004-05, the period for which we have details of statistical evidence collected by the National Sample Survey, and also the CSO and the DGET. On the basis of these examinations, we recorded in our first Report on Conditions of Work and Promotion of Livelihoods in the Unorganized Sector, that although in these ten years India experienced an impressive rate of growth of GDP, the benefits seem to have bypassed the overwhelming majority of India's population. Though the population suffering from extreme poverty and living below the so called official poverty line (approximately Rs. 12 per day per capita consumption in 2004-05) came down significantly from 1993-94 onwards, they seem to have moved only

vi ii

marginally above the poverty line and about 77% of them were stuck below the expenditure on average of Rs. 20/- per day per capita. We described these people as Poor and Vulnerable, as against the remaining 23% of Middle Class and Higher Income groups who seemed to have captured most of the benefits of the high income growth. We analysed the characteristics of this poor and vulnerable group, which contains about 88% of SC/ST, 80% of OBCs and 85% of the Muslim population of this country. Most of the population of this group were also either illiterate or without even primary education, and also suffer from malnutrition. These groups emerge as a sort of a coalition of socially discriminated, educationally deprived and economically destitutes, whereas less than one fourth of our population only was enjoying a high rate of growth or their purchasing power. We analysed their gender composition and human development and tried to devise programmes which the government might adopt to improve their status. 6. One very important characteristic of this group of the Poor and Vulnerable section of the people is that, they had very little expansion of their employment and enhancement in their earning capacity. Clearly, any programme for a sustained improvement of the well-being of these people will have to be centred around how to expand their employment. In this final report we have concentrated on this question and examined the status of employment of these people, and how to increase their employment and earning power. 7. We began by recording that the rate of growth of employment during the decade of 1993-1994 and 2004-05 declined significantly to 1.85 percent from the previous ten years of 2.03 percent for 1983 to 1993-94. There has been a similar decline in the growth rate of wages and average earnings of the workers between 1993-94 and 2004-05 compared to the previous decade. We have examined these numbers in terms of different definitions of employment and their estimates, all of which confirm these general trends, and that these years of high rate of economic growth were associated with a decline in the growth of employment and average earnings. Besides, this decline in the quantitative growth of employment, we analysed the changes in this quality of employment, or the conditions of decent

vii iii

work, in terms of formal and informal employment. Informal workers are those who do not have any job security, income security or social security and are therefore extremely vulnerable to exogenous shocks and who accept employment and describe that they are employed as the opportunity cost of that was not only unemployment but in most cases starvation. There are informal workers in organised sector as well as in unorganized sector where enterprises are legally unprotected and worked with less than ten workers. 8. The results of our analysis have been striking. The overwhelming portion of workers of the poor and vulnerable groups (between 94% and 98%) are informal workers, while they constitute much smaller proportion of the work force in the middle class or higher income groups. The growth rate of employment also was much less among the Poor and Vulnerable groups compared to the Middle and Higher income groups. In other words, both in terms of quantity and quality of employment the poor and vulnerable groups had been lagging far behind the others during the period of rapid economic growth. 9. This disconnect between income growth and employment growth in India becomes even more striking when we examine the records of the organized manufacturing sector. During the ten years of high rate of growth between 1993 and 2004, GDP was associated with an impressive growth of the value added in the manufacturing sector, but there was very little growth of formal employment in this sector during this period. There has been of course some growth of employment during this period, but that seemed to be almost entirely of informal employment of workers of casual and contract nature and informal regular low wage workers. 10. We do not have the statistics to examine the records of quantity and quality of employment during the period of 2004-05 and 2008-09, when the Indian economy continued to grow at a high rate. The limited evidence we have does not indicate much change in the picture. Though the Commission has analysed the projected employment in the next ten years in terms of the growth of the different sectors and their employment elasticity, it appears that without any change of our viii iv

basic policies we shall have to wait till about 2017 for a near full employment situation, only if our economy grows at 9% on the average. However, the share of informal workers in the economy is not likely to decline, hence the problems of quality of employment will continue to persist. 11. The implications of all these are very clear. We must have very targeted policies for expanding employment, especially in the unorganized sector, which can not be brought up simply by economic growth. Market forces alone may produce a high rate of expansion of India's GDP but for expanding employment, a well designed set of policies and programmes have to be adopted and implemented. They have to focus especially towards the unorganized sector which would continue to receive most of the increase in labour force. This report of the Commission goes into the details of such possible programmes in different chapters. Some programmes such as the National Rural Employment Guarantee Scheme have to be implemented as entitlement of workers with proper social auditing and financial provisioning. They need to be extended to the urban areas as well. Some programmes have to concentrate on social security to provide a minimum floor of quality of employment. Others will have to be built upon skill development to make the workers productive and employable. Special programmes have to be adopted for the small and marginal farmers who constitute 84% of our agriculture households and a new institutional framework has to be built up such as the National Fund for the Unorganised Sector (NAFUS), comparable to the NABARD for agriculture, to provide finance, marketing and technological facilities. To this may be added building up Growth Poles of clusters of small and tiny units and which must be complemented by the legal empowerment of street vendors, own account workers and slum dwellers. 12. The most important conclusion that follows from the findings of the Commission is that all these efforts to improve the quantity and quality of employment in the unorganized sector would require a new approach to economic planning in India. The objective of our planning process from now on should be 'maximizing employment', in terms of quantity and quality and social development.

ix v

Programmes have to be worked out with the details of demand and supply analysis of employment in different occupations, and in particular the process of their implementation has to seek collaboration of the civil society and panchayati raj institutions. There has to be full collaboration between the States and the Centre, complementing each other. The financial and investment implications of these programmes have to be worked out and the targeted growth rate including the tax rates and fiscal provisionioning, required to implement these programmes will have to be derived from these exercises. The GDP growth will remain important as without that resources can not be generated and mobilized for an effective full employment programme. But such growth will be a derived result from the overall objective of maximizing employment and social development. In a country like India that would mean mostly maximizing employment in terms of quantity and quality in the unorganised sector. 13. The Commission looks forward to the discussion and dissemination of this and other reports and the actions of the government to implement the recommendations thereof.

Arjun Sengupta Chairman National Commission for Enterprises in the Unorganised Sector New Delhi 30th April, 2009

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Acknowledgements The Commission would like to acknowledge the contributions made by a large number of institutions and individual experts in the preparation of various reports resulting in this final report. The Commission recognizes the guidance and support by the following members of the National Advisory Board (NAB) at various stages of its work. A number of them served as members of various Task Forces set up by the Commission. Professor Bhalchandra Mungekar, Member, Planning Commission, Government of India. Shri Swami Agnivesh, President, Bonded Labour Liberation Front, New Delhi. Professor Sheila Bhalla, Institute of Human Development (IHD), New Delhi. Professor Mahendra Dev, Director, Centre for Economic and Social Studies, Hyderabad. Ms. Madhu Kishwar, Editor, Manushi, New Delhi. Ms. Mirai Chatterjee, Self-Employed Women's Association (SEWA), Ahmedabad. Shri Joginder Kumar, President, Federation of Tiny & Small Scale Industries of India (FTSSI), Ludhiana. Professor Jean Dreze, Visiting Professor, GB Pant Social Science Institute, Allahabad. Professor Amit Bhaduri, Council for Social Development, New Delhi. Dr. Nachiket Mor, Executive Director, ICICI Bank, Mumbai. Secretary, Ministry of Micro, Small and Medium Enterprises, Government of India (Special Invitee). A special word of thanks is due to Professor Bhalchandra Mungekar, Professor Shiela Bhalla, Swami Agnivesh, and Shri Joginder Kumar and Shri Dinesh Rai, Secretary (MSME) for their active participation and support. The Commission constituted a number of Task Forces and Technical Expert Groups dealing with various subjects (see Annexure 1.3) and would like to thank the following persons (other than NAB members) for their contributions as members. Professor Alakh N. Sharma, Director, IHD, New Delhi. Professor V.S.Vyas, Emeritus Professor, Institute of Development Studies, Jaipur. Dr. S.L. Shetty, Director, Economic and Political Weekly Research Foundation. Dr A. V. Sardesai, former Executive Director, Reserve Bank of India. Dr. N.S. Sastry, Former Director General, Central Statistical Organisation, New Delhi. Professor Navin Chandra, Senior Fellow, IHD, New Delhi. Dr. Kamala Sankaran, Faculty of Law Delhi University, Professor Dinesh Awasthi, Director, Entrepreneurship Development Institute, Ahmedabad. Shri Mukesh Gulati, Focal Point Manager, UNIDO, New Delhi. Professor.Padmini Swaminathan, Director, Madras Institute of Development Studies, Chennai. Shri DE. Ramakrishnan, President, IFRASTE, Chennai. Professor D.N. Reddy, Former Dean and Professor, Central University, Hyderabad. Professor Surjit Singh, Director, Institute of Development Studies, Jaipur. Professor Kanchan Chopra, Director, Institute of Economic Growth, Delhi. Ms. Renana Jhabwala, President, SEWA BHARAT, New Delhi. Professor Jeemol Unni Professor, Gujarat Institute of Development Research (GIDR), Ahmedabad. Dr. Praveen Jha, Associate, Professor, Jawaharlal Nehru University, New Delhi. vii xi

Shri Sharda Prasad, Labour Commissioner, Government of Uttar Pradesh. Dr.Madhav Chavan, Director, PRATHAM, Mumbai. Lt.General (Retd.) S.S.Mehta, Principal Adviser, Confederation of Indian Industry (CII), New Delhi. Dr. N. Vijayamohanan Pillai, Centre for Development Studies, Trivandrum. Shri Kamal Taori, Director General, National Productivity Council, (NPC) Shri C. Chandran, Chief Executive Officer, Khadi and Village Industries Commission. Ms Achala, SADHAN, New Delhi. Ms. Jayashree Vyas, Managing Director, SEWA Bank, Ahmedabad. Shri Vipin Sharma, Program Director, CARE, Dr. C.S. Venkata Ratnam, Director, International Management Institute, New Delhi. Shri B. P Pant, Joint Director, AIOE, New Delhi. Shri Anil Bhardwaj, Secretary General, FISME, New Delhi. Ms.Nalini Gangadharan, Executive Director, Dr.Reddy's Foundation, Hyderabad. Shri K.K.Mittal, Director General Employment & Training, Ministry of Labour & Employment, Government of India. Dr.S.D.Awale, Joint Education Adviser (Technical), Member, Department of Secondary & Higher Education, Ministry of HRD, New Delhi. Professor Rakesh Basant, Indian Institute of Management, Dr. G. Vallabh, XLRI, Jamshedpur, Dr. P.K. Joshi, National Centre for Agriculture Programmes, New Delhi. Dr S M Jharwal, Principal Adviser, Ministry of Agriculture, Government of India. Dr. Sarita Nagpal, Confederation of Indian Industry, New Delhi. Director General, Central Statistical Organisation, New Delhi. Representative of the National Bank for Agriculture and Rural Development, (NABARD), Mumbai. Representative of the Small Industries Development Bank of India (SIDBI), Lucknow. A special word of thanks is due to Professor V S Vyas, a renowned economist and currently Chairman, Institute of Development Studies, Jaipur, Dr. S.L. Shetty, Director, Economic and Political Weekly Research Foundation, Mumbai and Shri A V Sardesai for their special efforts and contributions in the preparation of a Task Force Report on Access to Financing. Two international organisations namely, the United Nations Development Programme, New Delhi Office and the International Labour Office, both Geneva Headquarters and the Sub-Regional Office for South Asia, New Delhi supported and interacted closely with the Commission at various stages of its work. We would like to make a special mention of Ms Leyla Tegmo-Reddy, Director, ILO Office in New Delhi and her colleagues for their close interaction and mutual consultations on a range of issues relating to employment. We would also like to make a special mention of some of the professional colleagues from the ILO who interacted with the Chairman and Members of the Commission discussing and debating, and thereby helping to clarify, such issues as measurement, strategy and policy instruments for employment. They are: Professor J. Krishnamuthy, Dr. Gerry Rodgers, Dr. Duncan Campbell, Dr. Ajit Ghose, Ms. Azita Awad and Dr. Sukti Dasgupta. The Commission would also like to acknowledge the contribution made by institutions such as the Institute of Studies in Industrial Development, New Delhi, Institute of Economic Growth, Delhi and Institute for Human Development, New Delhi for preparing background studies and papers on specific subjects. The Institute for Human Development, the Institute of Development Studies, Kolkata, Institute for Social and Economic Change, Bangalore, Centre for Economic and Social Studies, Hyderabad, Working Women's Federation, Chennai, and Self viii xii

Shri D.P. Singh, Consultant, NCEUS. Dr. Y. P. Sabharwal,Consulting Actuary, New Delhi. Ms. T. Shobha, Consultant, NCEUS. Shri Ajaya Kumar Naik, Consultant, NCEUS. Dr. Pradeep K. Panda, Consultant, NCEUS. Shri C. Upendranath, Institute for Human Development, New Delhi. The analysis contained in this report is largely based on the unit level data sets made available by the National Sample Survey Organisation (NSSO) in respect of several nation wide surveys conducted by it at different points of time. The other organisations which made available valuable data sets were the Central Statistical Organisation (CSO), Directorate General of Employment and Training (DGET), and Small Industries Development Organisation (SIDO). The Commission would like to thank the Ministry of Statistics and Programme Implementation, Government of India for making data available as well as deputing officials to work with the Commission. The statistical team at the Commission worked under the able guidance and direction of Dr. G. Raveendran, Former Additional Director General, Central Statistical Organisation and subsequently Senior Consultant, NCEUS who worked with the Commission throughout its life steering clear of the statistical nuances and computational challenges. The Commission records its special appreciation of his services. The Ministry of Micro, Small and Medium Enterprises, Government of India, apart from providing administrative support interacted very closely with the Commission at every stage of its work. A special word of thanks is recorded to Shri Dinesh Rai, Secretary and his colleagues. Last, but not the least, it is our pleasant duty to place on record our deep appreciation of the valuable services rendered by the staff of the Commission. Shri S. V. Ramana Murthy, Director, shouldered the main responsibility for coordinating all the activities related to the preparation of this Report. Excellent research assistance was provided by Shri Ajaya Kumar Naik, Consultant, and Ms. T. Shobha, Consultant. Shri G. Sajeevan, Shri Ashutosh Mishra and Shri J. D. Hajela, all Directors in the Commission, provided valuable support in statistical computation, drafting of chapters and other related work. Shri Savitur Prasad, Joint Secretary, Shri D P Singh, Shri Suresh Kumar, Under Secretaries, and Shri H.S. Chhabra, Section Officer and the whole team of supporting staff provided excellent services in the functioning of the Commission in general and the preparation of this Report in particular. Shri S. Muraleedharan, PPS, Shri U.K.Kutty, PA, Ms Suman Dhingra, PPS, and Ms Sudha Rajagopalan, PPS, Shri Ram Kumar Sharma, PPS and all other members of the administrative staff provided valuable assistance.

Conditions of Work of Wage Workers in Non-agricultural Sector Socially Objectionable or Extreme Conditions of Work Self-employed Workers in Non-agriculture Conditions of Work of Self-employed Workers Constraints on Self-employed Workers & Informal Enterprises The Commission’s Strategy of ‘Levelling Up’ Labour Law Reforms : Beyond a Narrow Agenda

142 145 148 149 150 152 168-187

Introduction Evolution of Labour Laws in India Important Labour Regulations & Their Coverage Relation between Labour Laws & Employment Generation Major Issues in Labour Law Reforms Labour Laws & the Unorganised Sector Recommendations for Labour Law Reforms Conclusion The Challenge of Skill Formation & Development Introduction Skill Formation, Productivity & Growth The Skills-Productivity-Growth Link The Case of the Informal Sector Skill Profile of the Indian Workforce Selected International Experience System of Skill Development in India Recommendations Conclusion Public Employment Programme for the Unorganised Workers: The Case of NREGA Introduction National Rural Employment Guarantee Act The Context & Contours of NREGA – A Review A Snapshot of NREGA Over Three Years Some Positive Benefits Lessons from Variations in Performance Success Stories Remaining Gaps Need for Safeguarding Essential Entitlements Some Operational Deficiencies Recommendations Conclusion An Employment Strategy for Agriculture Centred on Marginal & Small Farmers Introduction

Employment Potential of Indian Agriculture Growth Potential of Indian Agriculture Recent Initiatives in Agriculture Dimensions of Marginal/Small Farming in India Key Issues & Problems of Marginal & Small Farmers Integration into Markets and Risk Approach of the Commission & Recommendations Conclusion The World of Micro Enterprises : Characteristics and Constraints Introduction Micro Enterprises in Rural and Urban Areas Unravelling the Heterogeneity Industrial Distribution of the Micro Enterprise Sector Contribution to National Income Informal Manufacturing and Productivity: A Disaggregated Picture The All-India Picture A Regional Picture Major Industrial Groups (Enterprises) by States Constraints faced by Micro Enterprises Constraints on Micro Enterprises: A Summing Up Sub-Contracting : An Aspect of Linkages between Micro and Large Enterprises Policy Implications Access to Credit Introduction Size and Characteristics of Unorganised Enterprises Access to Credit to Micro and Small Enterprises: The Present Scenario Micro Credit as a Palliative Institutional and Policy Support for Credit Informal Credit: Role of Money Lenders Policy Measures to Promote Credit to Micro and Small Enterprises Credit Policy in the Current Context: A Micro Enterprise Perspective Some Larger Issues Conclusion and Policy Recommendations Access to Technology, Marketing and Raw Materials Introduction Access to Technology Technology and Innovation in MSEs: The Salient Analytical Issues Technological Interventions and Innovations that transform an industry: The Role of the Central Leather Research Institute (CLRI) in the Leather industry Fostering rural innovations - the Rural Innovations Network Intervening in a cluster: EDI in Jamnagar brass parts cluster Technology Acquisition and Upgradation: Two Case Studies Access to Marketing

11.2: Distribution of Workers in Unorganised Manufacturing Enterprises by Industry

277

11.3: Percentage share of enterprises in selected manufacturing Industries by state and location, 2005-06

278

11.4: Proportion of Enterprises Working under Subcontracting Arrangement in Indian States: 2000-01 and 2005-06

279

11.5: Proportion of Enterprises Operating Under Subcontracting Arrangement by Source of Equipment, Raw Material and Design by Type of Enterprises and Location: 2000-01/2005-06 (percent)

280

12.1: Status of Implementation of the Commission's Recommendations

295

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Volume II - Annexures 1.1:

Past and Present Composition of the Commission

1

1.2:

Composition of the Advisory Board

2

1.3:

Task Forces and Technical Expert Groups Constituted

3

3.1:

Measures of Labour Force Participation and Utilisation

18

5.1:

State-wise UPSS Labour Force by Sector and Sex as on 1st April of 2007, 2012 and 2017.

39

5.2:

State and Age Group-wise UPSS Labour Force by Sector and Sex as on 1st April of 2007, 2012 and 2017.

44

5.3:

State-wise MCWS Labour Force by Sector and Sex as on 1st April of 2007, 2012 and 2017.

79

5.4:

State and Age Group-wise MCWS Labour Force by Sector and Sex as on 1st April of 2007, 2012 and 2017.

84

5.5:

State-wise UPSS Labour Force by Educational Status, Sector and Sex as on 1st April of 2007, 2012 and 2017.

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119

1

Introduction 1.1 India is perhaps the first country to set up, at the national level, a commission to study the problems and challenges being faced by what in India is called the unorganised economy - or the informal economy as it is usually referred to internationally – and recommend measures to the government to address them. The political compulsion for such a remarkable initiative was thrown up by India’s success in achieving and sustaining a high economic growth since the mideighties but one that did not adequately address the livelihood security issue of a majority of its citizens. The euphoria of a ‘shining India’ created during the 2004 general elections turned out to be a short-lived one when the vast underbelly of a ‘suffering India’ voted decisively in favour of a programme that focused on the livelihood issues of the common people, the aam aadmi as it is popularly referred to. 1.2 This programme known as the Common Minimum Programme of the United Progressive Alliance, which formed the government at the national level, stated that “The UPA government is firmly committed to ensure the welfare and well-being of all workers, particularly those in the unorganised sector who constitute 93 per cent of our workforce. Social security, health insurance and other schemes for such workers like weavers, handloom workers, fishermen and fisherwomen, toddy tappers, leather workers, 1

plantation labour, beedi workers, etc. will be expanded.” “Enhance the welfare and wellbeing of farmers, farm labour and workers, particularly those in the unorganised sector and assure a secure future for their families in every respect.” “The UPA administration will ensure the fullest implementation of minimum wage laws for farm labour. Comprehensive protective legislation will be enacted for all agricultural workers.” 1.3 As part of fulfilling this commitment the National Commission for Enterprises in the Unorganised Sector (NCEUS) was set-up by the Government vide Resolution No:5(2)/2004-ICC th September,2004 under the dated 20 chairmanship of Dr. Arjun Sengupta as an advisory body to recommend measures considered necessary for enhancing the competitiveness of the unorganised sector in the emerging global environment and generation of large scale employment opportunities on a sustainable basis. The terms of reference given to the Commission are as follows: i.

Review of the status of unorganized/ informal sector in India including the nature of enterprises, their size, spread and scope, and magnitude of employment;

ii.

Identify constraints faced by small enterprises with regard to freedom of carrying out the enterprise, access to raw

Suggest the legal and policy environment that should govern the informal/unorganized sector for growth, employment, exports and promotion;

iv.

Examine the range of existing programmes that relate to employment generation in the informal/ unorganized sector and suggest improvement for their redesign;

v.

Identify innovative legal and financing instruments to promote the growth of the informal sector;

vi.

Review the existing arrangements for estimating employment and unemployment in the informal sector, and examine why the rate of growth in employment has stagnated in the 1990s;

vii.

Suggest elements of an employment strategy focusing on the informal sector;

viii.

Review Indian labour laws, consistent with labour rights, and with the requirements of expanding growth of industry and services, particularly in the informal sector, and improving productivity and competitiveness; and

ix.

Review the social security system available for labour in the informal sector, and make recommendations for expanding their coverage.

Expert Groups on certain specific themes) to provide a forum for detailed deliberation (see list given in Annex 1.3). The deliberations were backed by specially commissioned studies and papers prepared by experts. In addition, detailed computations and analysis of statistical data were carried out within the Commission. Wherever necessary, discussions and interactions with central and selected state governments, academia, civil society organizations, workers’ organizations, and industry associations were held. Subsequently regional and national consultations were held for discussing the preliminary reports and papers. Discussions were also held with selected state governments, state level academia, civil society and workers organisations. Through such a process of structured interaction, the Commission was in a position to elicit a large number of views and recommendations and build as much a consensus as feasible. 1.6 It goes without saying that given the vast mandate of the Commission and the comprehensiveness with which it has tried to examine various issues, it has not been possible for us to examine all the relevant issues with the same degree of rigour. Nor have we been able to do adequate justice to the heterogeneity of this sector. Nevertheless, we have tried to set out an approach and a framework within which we have examined the differing constraints and growth opportunities of the various segments which constitute the informal economy. In the final analysis, the Commission alone is responsible for the views expressed and recommendations made in its various reports.

1.4 The Composition of the Commission and its Advisory Board are given in Annex 1.1 and 1.2.

Past Reports

Wide ranging consultations

1.7 Report on Definitional and Statistical Issues Relating to the Informal Economy (NCEUS 2008a): One of the first tasks of the Commission, and a challenging one at that, was to define its universe of study. When the Commission began its work, there was no precise definition of the informal/unorganised sector not to speak of the informal employment. Through a series of consultations and deliberations, the Commission defined the unorganised sector and unorganised employment. It also decided, by examining the international practices, to use the terms ‘unorganised’ and ‘organised’ interchangeably with ‘informal’ and ‘formal’. The definitions adopted by

1.5 The Commission sought to address each of the Terms of Reference in a systematic manner through a process of building up as broad-based a consultation as possible especially among the stake holders. The Commission has been aware of the wide-ranging nature of the Terms of Reference and the formidable challenges in not only studying them but also to come up with clearly formulated recommendations for policy. In addressing these Terms of Reference the Commission, after initial deliberations, constituted Task Forces (or Technical 2

Introduction

the Commission were subsequently used in all its statistical computations and reports. A detailed report titled Report on Definitional and Statistical Issues Relating to the Informal Economy was then submitted in 2008 containing the results of these new computations on the informal sector, informal employment, GDP emanating from the informal sector and the characteristics of informal sector enterprises and workers. A set of recommendations were also made that will, if adopted by the statistical system, make available highly useful data for policy formulation and implementation with regard to addressing the problems and challenges facing the informal economy.

unorganised workers, in the Government and finally by the Parliament where a bill was introduced. The final result was an Unorganised Workers Social Security Act 2008 that incorporates a number of, if not all, recommendations of this Commission. 1.10 Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector (NCEUS 2007a): This was submitted in August, 2007 as an overarching report by the Commission, that in fact set the agenda for working out a comprehensive strategy for transforming the informal sector into efficient units of production and services while ensuring decent conditions of employment for the informal workers with income and social security. The report analyzed the conditions of work of farmers, wage workers, women workers, home based workers, as well as the regulations of conditions of work in India of the unorganised sector. In order to protect and promote the livelihood of the unorganised workers in India, the Commission in the report has also suggested a “13 Point Action Programme” under four separate packages that should get “overriding and immediate priority”, for the unorganised sector workers. This report, attracted wide attention and publicity in the official/non-official circles and the media and has become a subject of debate in and outside the Parliament. The main recommendations were followed up by the Commission for detailed deliberation and formulation of implementable action plans and the subsequent reports were the products of such an exercise.

1.8 The core of the Commission’s recommendation relating to the definition of the informal economy is the following:

´

Informal Sector: “The unorganized sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers”.

´

Informal worker/employment: “Unorganized workers consist of those working in the unorganized sector or households, excluding regular workers with social security benefits provided by the employers and the workers in the formal sector without any employment and social security benefits provided by the employers”.

´

1.11 Reports on Financing of Enterprises in the Unorganised Sector and Creation of a National Fund for Unorganised Sector (to be called NAFUS)(NCEUS 2007b): These two reports, the second arising out of the first, were combined into one document and presented to the Government in November, 2007. The first report on financing examines in detail the status of financing to this sector and deals with the deficiencies in institutional infrastructure, constraints in financing this sector and provides a set of comprehensive recommendations. The NAFUS proposed by the Commission is envisaged as a development agency with statutory backing and funded by the Central Government and Financial Institutions that will primarily focus on non-farm micro enterprises. The Fund to begin with, will have a modest corpus of Rs.500 crore going up to Rs.1000 crore in the fifth year.

Informal economy: The informal sector and its workers plus the informal workers in the formal sector constitute the informal economy.

1.9 Report on Social Security for Unorganised Workers (NCEUS 2006b) This report on social security was submitted in May, 2006. While deliberating on the issue of social security for informal workers, the Commission recommended a universal social security for all workers and suggested a social security Act as a right. The NCEUS submitted a bill in this regard which was deliberated upon by the media, organisations of informal/ 3

The Challenge of Employment in India

This Fund will be created on the pattern of NABARD or SIDBI and is exclusively meant for meeting the financing and promotional assistance gaps in the development of the Non Farm Unorganised Sector.

1.14 Report on Skill Formation and Employment Assurance in the Unorganised Sector (NCEUS 2009b): The Commission’s Report on Skill Formation and Employment Assurance in the Unorganised Sector brought out various aspects of the need and also the ways to enlarge skill base of the economy in keeping with its large size, heterogeneity, and nature of the growth dynamics of the informal or unorganised sector. While recognizing the necessity of increasing the number of skilled persons across the economy, our report emphasized the need to take an informal sector-specific view of the issue because of the preponderance of employment in informal sector. Skill requirement of the informal sector therefore has to be visualized quite differently from the formal sector. The Commission has also laid out in the report a detailed strategy and formulated a set of recommendations for revamping, expanding and re-orienting the existing skill development system in India.

1.12 A Special Programme for Marginal and Small Farmers (NCEUS 2008b): This short report submitted in December 2008 was intended to focus on the agricultural economy in the country which is synonymous with informal economy. While there exists a large body of literature on the problems and challenges being faced by the agricultural economy as well as recommendations of a number of committees and commissions, our idea was to focus on the marginal and small farmers, as distinguished from farming and relating activities, who constitute 84 percent of all farmers contributing to a little more than half the GDP from agriculture. This special programme suggests a group approach to the delivery of various services to the farmer and farming and related activities.

1.15. Report on Technology Upgradation for Enterprises in the Unorganised Sector (NCEUS 2009c): This report examines the status of technology in the informal (micro) and small scale enterprises and makes recommendations for its upgradation. The report shows that even 85 percent of registered small scale units did not have access to technical know-how. It recommends the constitution of a focal point for improvement in productivity and competitiveness of enterprises in the unorganised sector. It also suggests the adoption of a mission mode approach for promotion of technology in the unorganised sector through CSIR and recommends that Technological Innovation and Dissemination Centres (TIDCs) be set up in each state/UT and District Industries Centres should act as district level nodal agency for technology dissemination.

1.13 Report on Growth Pole for the Unorganised Sector (NCEUS 2009a): Up-scaling cluster development through Growth Poles was a key recommendation by the NCEUS in its August 2007 report on “The Conditions of Work and Promotion of Livelihood in the Unorganised Sector”. The report on Growth Poles Programme for Unorganised Sector Enterprise Development brought out the concept of this up scaling cluster development in a contiguous geographical area to create sustainable employment and incomes with accompanying socioeconomic gains. Implementation of the programme involves proactive participation of the government, the private sector and beneficiary groups. In the first instance, the Commission is proposing six pilot Growth Poles for consideration by the Government, viz., Sikandra in Rajasthan, Domjur and Panchla in West Bengal, Kollam in Kerala, Chamoli in Uttarakhand, Champa and Janjgir in Chhattisgarh, South-Western Kamrup in Assam. Based on the experiences from these pilot projects more growth pole projects, at least one in each state can be supported during the Eleventh Plan.

Other Reports and Proposals 1.16. In the course of its functioning, the Commission also submitted a few proposals to the government on selected issues. Prominent among these are the Revised National Policy for Urban Street Vendors (NCEUS 2006a), and “Global Economic Crisis and the Informal 4

Introduction

‘leveling up’ the informal economy to close the widening gap between the formal and informal segments in India’s overall economy.

Economy of India (NCEUS, 2008c) submitted in November 2008 on the need for a informal-economy focused response to the impact of the global financial and economic crisis on India. The main features of this proposal were (i) to increase pro poor public investment such as JNNURM, (ii) strengthening NREGP, (iii) introduction of an urban employment guarantee programme, (iv) increasing the access to credit for micro enterprises and (v) the immediate announcement for creating the NAFUS.

Organisation of Chapters 1.20. Chapter 2, following this introductory chapter, sums up the argument in the entire report by pulling together the various views and findings based on empirical analysis. It has been written more in the nature of an argument than a technical summary. 1.21. Chapter 3 examines the various measures currently in use for measuring employment and unemployment in the economy and puts forward, through practical application, a modified approach to get a better understanding of the intensity of work of the employed and underemployed.

Follow up by Government 1.17. The government has taken up consideration of the recommendations of the Commission through various modalities, including setting up of Committee of Secretaries, and mandating discussions between the NCEUS and the Planning Commission. Considering the wide ambit and the number of reports from the Commission, the government constituted in August, 2008 an Inter-Ministerial Group to examine the various recommendations to advise the government on appropriate follow up action.

1.22. Chapter 4 takes stock of the size and characteristics of the labour force by an examination of past trends and points out the structural weaknesses. 1.23. In Chapter 5 we discuss the likely increase and its regional spread in the labour force and wonder whether it indeed constitutes a demographic dividend or a demographic burden unless concerted efforts are made to invest in human capital and human development.

1.18. It is hoped that such new initiatives as might be taken by the government will contribute decisively to the narrowing of the gap between the ‘suffering’ and ‘shining’ India.

1.24. Chapter 6 is a link chapter between the analysis and the following chapters on recommendations. It recaptures the Commission’s work in examining employment and work through the lens of formality and informality and seeks to establish that a major problem in employment in India is its quality that is captured by informality. The chapter then sets the agenda for a strategy of leveling up. Before doing so, the report examines an often flaunted horse - labou reform.

This Report 1.19. This Report in a sense is an overarching one encompassing the entire agenda set out in our Report on Conditions of Work. At the same time, it goes beyond the specific recommendations by providing a broader framework within which the challenge of inclusive development is examined. Here the Commission has placed employment as the central objective around which the objective of inclusion could be realized. In doing so, the Commission has examined the employment implications of economic reforms and the need for an employment strategy to meet the twin challenges of quantity and quality. It then advocates a strategy of

1.25. So in Chapter 7 we discuss the agenda of labour reforms which is sought to be reduced to a debate on labour market inflexibility (ironically in an economy dominated by 92 percent of informal workers). Here the Commission comes up with a broader agenda of labour law reforms that recognizes the need for a simplified and harmonised national labour court and a certain minimum of protective regulation for the vast informal sector.

5

The Challenge of Employment in India

1.26. Chapter 8 is devoted to a discussion on the need for a massive skill formation programme but one that is focused on informal sector.

1.29. Chapters 11 to 14 are exclusively devoted to a discuss of the size, situation and problems of the nonfarm micro enterprises that absorbs the largest segment of informal workers after agriculture while contributing to a little more than 30 percent of GDP. The enormous scope for strengthening them through greater access to credit, technology, marketing and raw material is specially highlighted and recommendations made.

1.27. Chapter 9 emphasizes the role of public employment programmes as a regular feature and makes a series of recommendations for strengthening the historic initiative in the form a National Rural Employment Guarantee for rural households. It also recommendes a similer programme for urban areas.

1.30. Finally, Chapter 15 pulls together the various recommendations in one place.

1.28. In Chapter 10 we discuss the situation of marginal and small farmers and need for a farmer-focused programme to create and strengthen them as a group through a network of organisations.

6

2

Expanding employment in the Indian economy Introduction 2.1. The expansion of employment that ensures adequate livelihood security and decent conditions of work ought to be the bottom line in the pursuit of economic development in a country like India dominated by what is called the informal economy. Here informality in employment refers to the absence of employment and/or social security and it is overwhelmingly associated with low income, poverty and vulnerability. India’s Five Year Plans have been, by and large, based on maximizing the growth in national income to which some policies and programmes were incorporated to redistribute income and generate employment arising out of the combination of backlog of unemployment and additions to the labour force. 2.2. The policies for promoting employment have been mainly, if not exclusively, aimed at increasing the quantity of employment which is what the official statistical surveys capture using multiple concepts and definitions. This approach which considers employment to be a scalar or one-dimensional quantity actually has multiple dimensions and attributes. These have to do with regularity (job security or employment security), income security and social security and decent conditions of work. Decent conditions of work, as pointed out by this Commission in its earlier Report on Conditions of Work and Promotion of 7

Livelihoods in the Unorganized Sector (henceforth referred to as Report on Conditions of Work; see NCEUS 2007a) pertains to issues such as payment of minimum wages, hours of work, safety conditions, and freedom of association and dispute redressal. Thus, each of these broad dimensions can be further considered to be associated with a number of attributes which we have discussed in our previous reports. Together, these attributes comprise what we may call quality of work. 2.3. The aspect of quality that is commented upon most widely arises from a disconnect between employment and a minimum level of consumption or income. As observed by many scholars and official agencies, for example Planning Commission (2001), with an unemployment rate of 8 percent, the estimated head count ratio of poverty in India was 26 percent in 1999-00. In other words, a large number of people were employed in some sense, but did not earn enough. This is a very important dimension of employment but not the only one that this Commission has focused upon in its work under the rubric of “quality” of employment. 2.4 At the margin, these two dimensions of work viz. quantity and quality are themselves related. Availability of work in sufficient quantity could impact on wages and working conditions (e.g. Planning Commission 2001) but this aspect needs careful consideration, more so in the context

The Challenge of Employment in India

Table 2.1: Estimates of Labour Force, Work Force and various measures of the Unemployed as per MCWS measurement (in million)

of self-employment. If a person’s employment status varies by the day and over seasons, and even within a workday, when do we say that a person is employed? What about the intensity of such work? Clearly some minimum benchmark level of regularity in employment should be required before we describe a person as employed. The usual empirical definition of employment followed in the 1 Indian context is that of “usual status” which has been contested by the Planning Commission Special Group (Planning Commission 2002a) which preferred to use the concept of average number of persons, based on 2 “current daily status” . However, this also is not without major limitations, as we discuss later in this report. The Commission has therefore proposed an alternative measure, combining weekly and daily status, which we 3 4 call the Modified Current Weekly Status or MCWS which enables us to have a better estimate of more durable employment, while at the same time distinguishing this from underemployed or part-time workers for whom also work opportunities have to be significantly stepped up. Table 2.1 gives the Commission’s estimate of employment and underemployment based on MCWS measurements in 1993-94 and 2004-05.

1993-94

2004-05

Growth Rate (%)

Labour force

345.15

429.88

2.02

Workers

326.97

401.13

1.88

Unemployed

18.18

28.74

4.25

Severely Unemployed

18.08

28.65

4.27

Strictly Part-time Workers

10.90

13.06

1.66

Under-employed

5.69

9.57

4.84

342.92

423.36

1.93

CWS Worker Note:

Severaly Unemployed refers to those reporting unemployment for 3.5 days or more of the week; Strictly Part-time Workers refers to persons who worked for 0.5 to 3 days in the week and are not available for work even for 0.5 days during rest of the week; Under-employed refers to persons who worked for 0.5 to 3 days in the week and are unemployed for at least 0.5 days in the week Source: NSSO 50th and 61st Round Survey on EmploymentUnemployment. Computed.

also reiterated the need to generate employment of adequate “quality” that constitutes “decent work”. Thus there has been lack of clarity on what constituted employment quality. As compared to these earlier reports, this Commission has given a detailed typology and description of employment quality in its Report on Conditions of Work and this report extends the analysis of employment further in new directions.

2.5 Broadly put, quantity and quality of employment have independent attributes but are also closely related and any strategy of employment has to address both these sets of issues. It is only quite recently that some attention is being given to quality of employment. The Taskforce on Employment (Planning Commission 2001) mentioned employment quality as an issue but did not define it. The Special Group (Planning Commission 2002a) suggested the need to take a broader view of employment quality which include elements such as earning, minimum wage and security but did not again define the constituent elements of ‘quality”. The Eleventh Five Year Plan has

2.6 What is the nature and magnitude of the employment problem in India? What needs to be done to address it? There are distinctly different views on these issues. The Indian economy underwent a major course change in 1991-92 involving structural adjustment and

1

Usual status includes both principal and subsidiary status of persons. A person is considered to be in the labour force as per usual principal status if s/he had been either working or looking for work during longer part of the 365 days preceding the survey. Those who, were not is labour force as per usual principal status but had worked usually on a subsidiary status were considered as subidiary status workers and included in the usual principal and subsidiary status (UPSS) labour force in the year 2004-05, a minimum duration of employment of 30 days in the year was introduced for inclusion in the labour force on a subsidiary status

2

Current Daily Status is decided on the basis of the information on employment and unemployment recorded for each of the 14 half days of the reference week.

3

A person is classified to be in labour force as per current weekly status, if s/he has either worked or is seeking work and/or available for work at least one hour during the reference period of one week preceding the date of survey.

4

A person is classified to be in the labour force as per MCWS, if he has been working or seeking and/or available for work for majority of the time while in labour force. This is usually for 3.5 days or more during the reference week. 8

Expanding employment in the Indian economy

internal and external liberalization. These changes were expected to give a major fillip to the labour intensive sectors, in agriculture, industry as well as services, by removing the negative fall-out of protectionist strategies and encouraging trade. The resulting scenario was expected to bring about higher growth, higher rates of employment growth, and a faster rate of increase in the incomes of workers engaged in the labour intensive sectors. These impacts were not expected to be restricted to tradable sectors and commodities, but as in the case of agriculture, were expected to be economy wide. Growth was thus not only expected to be higher but also proemployment and therefore pro-poor, raising incomes among the workers in the labour intensive sectors of the economy.

higher aggregate growth. We have estimated that the annual growth rate of employment declined from 2.03 percent in 1983-1993/94 to 1.85 percent between 1993-94 and 2004-05 as per UPSS estimates with the corresponding decline being from 2.72 percent to 1.88 percent as per MCWS measurement. Second, employment in India can be meaningfully grouped into four categories to reflect quality and its sectoral association. These are (a) formal employment in the formal or organised sector, (b) informal employment in the formal sector, (c) formal employment in the informal sector, and (d) informal employment in the informal sector. We find that the Indian economy is dominated by (d) constantly around 86 percent of employment as of 2004-05.

2.7 Since the early 1990s, a wealth of information is now available on the country’s record of employment and workers’ wellbeing. In the earlier reports, this Commission has examined, among other sources, the record of employment and wages available from the NSS Employment-Unemployment Surveys, the NSS surveys on consumption expenditure, the enterprise surveys, the survey on Situation Assessment of Farmers, and the Annual Survey of Industries. Work within the Commission (Kannan and Raveendran 2009) as well as specially commissioned studies for this report (Goldar 2009 and Mitra 2009) have examined (a) the performance of the organized manufacturing sector in terms of growth and employment, and (b) the links between trade and employment, and the record of employment in the most recent years, using company data (in the absence of survey data). In other words, the data analysed and studied by this Commission goes well beyond what other studies/ reports have hitherto used to answer related sets of questions.

Third, the net growth of employment in the quinquennium for which we have data (1999-00 to 2004-05) has been largely of an informal5 kind, implying that these workers are vulnerable in significant ways. This is true of both formal and informal sectors. What this means is that even the increase in employment in the formal sector is entirely that of informal employment suggesting informalisation of the formal sector as far as employment is concerned.

2.8 The succinct answers that the Commission has found are briefly the following:

Fourth, the growth rate of wages of almost all categories of workers (15 out of the 16 given in Table 2.2), including casual work6 which concerns the bottom layer of workers has declined during 1993-94 to 2004-05 characterized by economic reform compared to the previous decade of 1983 to 1993-94. This is clearly a case of generalized slow down in the growth of wages when the overall economy registered a higher growth in income during the second period compared to the first.

First, the record of employment-unemployment in more than a decade since 1993-94 (1993-94 to 2004-05) has been unimpressive compared to the previous decade (1983 to 1993-94), and this despite

Fifth, the informal sector enterprises face higher constraints on growth due to lack of access to credit, technology, marketing, skills, and also incentives. Various reports, surveys and studies have brought

5

Informal and formal division is not available for previous years

6

Except regular rural females in agriculture 9

The Challenge of Employment in India

this out time and time again. Despite such a longstanding and perceived absence of a ‘level playing field’ to the micro (as well as small enterprises that are outside the definition of informal sector enterprises), policy attention largely, if not only, catered to the creation of ‘special playing field’ (e.g. in the form of Special Economic Zones and greater access to domestic and external institutional credit) for large corporate entities further undermining the capacity of the micro and small enterprises to provide productive employment to the growing labour force.

‘formal/informal’ and ‘organised/unorganised’ interchangeably such that they are consistent with international definitions adopted by the International Conference of Labour Statisticians and the International Labour Organisation.

Formal Sector Employment 2.10 It is clear to us that the growth that has occurred in the period examined by the Commission (1993-94 to 2004-05), along with all the other concomitant changes, for example in labour markets, has not been able to impact appreciably on either the quantity or quality of employment in the country. The mandate of this Commission has been to examine the informal economy which comprises of the most vulnerable sections of the labour force. The formal workers in the formal economy are better protected in terms of the dimensions of quality that we have enunciated earlier. In the existing institutional arrangements, improvement in the quality of work is strongly associated with increasing formalization of the workforce. However, the organized or formal sector continues to be stagnant in terms of formal employment, an issue which needs to be addressed for improving quality of employment/work.

Sixth, a large proportion of the Indian workforce and the Indian population (more than threequarter) continues to be ‘poor and vulnerable’ as per the criteria developed by us and this segment has experienced very low rates of improvement in living standards as a whole since the early nineties (see NCEUS 2007a; for details see Sengupta, et.al. 2008). Finally, the growth that occurred has been unequal, concentrating its benefits among the top segments of the population. 2.9 In line with our recommendations in the Report on Definitional and Statistical Issues Relating to the Informal Economy (NCEUS 2008a), we have used the terms

2.11 Prior to the work of this Commission, all reports and studies in India have relied on Employment Market

Information (EMI) data of the Director General Employment & Training (DGET) of the Ministry of Labour and Employment for employment statistics relating to the organized or formal sector or a more restricted data set on industries, collected by the Central Statistical Organisation in the Annual Survey of Industries (ASI). 2.12 Since EMI data captures all formal enterprises and establishments, this is the only source of information on formal sector employment in the country. However, it suffers from many drawbacks which needs to be kept 7 in mind before we interpret this data even for our limited purpose of understanding the direction of change in formal sector employment. All enterprises and establishments employing more than 25 workers are required to report 8 employment data on a mandatory basis for the EMI , while units employing between 10 and 25 workers may do so on a voluntary basis. Questions have been raised in the past on the reliability due to increasing under coverage and under reporting over the years, But the EMI data has remained the only source on organized employment in the country. 2.13 According to this data, there has been a gradual shrinkage of the share of the organized sector employment in India. Total organized sector employment was estimated at 24.01 million in 1983 and this increased to 27.18 million in 1993. It then reached a peak of 28.24 million in 1997 but then started declining and reached a low of 26.64 in 2006, the latest year for which data are available. As a share of the total work force in the economy the formal sector employment reported by the DGET works out to 7.9 percent in 1983, 7.3 percent in 1993-94 and 5.8 percent in 2004-05. Although public/ government sector employment has witnessed a greater decline (from 5.4 % of the workforce in 1983 to 5.2 percent in 1993-94 and then to 3.9 percent in 200405), private organized sector employment also shrank as percentage of the total workforce (from 2.5 percent in 1983 to 2.1 percent in 1993-94 and just 1.8 percent in 2004-05). In absolute terms, the public sector added

2.87 million between 1983 and 1993 but shed 1.46 million between 1993 and 2006. As against this the private sector added just 30 thousand jobs during 1983 and 1993 and another 92 thousand during 1993 and 2006. These details given in Appendix 2.1 as well as in Fig. 2.1 also tell us that in relative terms, the organized public sector continues to be twice as important as the private sector and the latter constituted less than two percent of the workforce by this estimate. Compared to the policy attention and preferred treatment accorded to the organized private sector (e.g. cheaper credit, greater and easy access to external borrowing, export incentives, special treatment via SEZs, privatization of public enterprises and a host of other measures), its contribution to employment, as reported by the DGET, is indeed miniscule, to say the least. 2.14. The other data source which relates principally to organized manufacturing (with some component of repair and services and mining) is the Annual Survey of Industries. Unlike the EMI, this data source shows some fluctuations in growth rate of employment which have been extensively analysed in scholarly papers and which we briefly refer to later. Comparison with the EMI data also shows that the former is higher suggesting undercoverage or under reporting in the latter9 . For example in 2004-05, manufacturing employment as reported by the ASI was 8.29 million, but the DGET figure for organized manufacturing employment was only 5.62 million. 2.15 Detailed analysis of the work force in organized manufacturing sector using ASI and after making adjustments due to changes in the coverage of the survey, show a stagnant phase in the 1980s, followed by increase in employment in the early to mid-1990s, a decline thereafter, and some recovery and growth for the most recent year i.e. 2004-05 (see Fig. 2.2). Overall, however, organized industrial employment has seen very little growth for a period close to quarter of a century.

7

These are (i) use of incomplete list of establishments, (ii) partial responses, (iii) non-coverage of contract, casual and temporary employment and (iv) delays in reporting.

8

Under EMI, establishments in Mumbai and Kolkatta employing 10 to 24 workers are not covered.

9

NCEUS has recommended discontinuation of the system of approximating the organised sector employment with the estimates of DGET and to use NSS employment-unemployment surveys to estimate the same. 11

The Challenge of Employment in India

Fig. 2.1: Employment by Public and Private Sector between 1983 and 2006

Fig. 2.2: Total persons engaged in Manufacturing Industries

Source: Annual Survey of Industries (For details on adjustment of data to obtain a long-term series on manufacturing proper see, Kannan and Raveendran 2009).

Source: Ministry of Labour & Employment (DGE&T).

Formal and Informal Employment in the Formal Sector: Commission’s estimates

2.18. The definition of the unorganised enterprise constituting the unorganised sector given here is a generic one in the sense that it has no legal personality of its own (other than the person who owns it); it is small in employment size and, more often than not, associated with low capital intensity and labour productivity. The diverse nature of these enterprises is often a response to the demand for a variety of lowprice goods and services produced in different modes of self-employment, unpaid family labour and wage work (often concealed as self-employment under different forms of putting-out systems).

2.16 The NCEUS has not only given a clear definition of the formal/organized sector, it has also directly estimated the employment in the formal sector using unit record data from the National Sample Survey Employment-Unemployment Rounds of 199900 and 2004-05. The Commission has used the following definition to separate the unorganised sector from the organised sector: “ The unorganised sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers”.

2.19. The Commission has also made an important distinction between organized or formal and unorganised or informal employment as follows: “Unorganised workers consist of those working in the unorganised enterprises or households, excluding regular workers with social security benefits, and the workers in the formal sector without any employment/ social security benefits provided by the employers”.

2.17. The Commission considers all agricultural activities undertaken on agricultural holdings, either individually or in partnership, as being in the unorganised sector. According to this definition, it excludes only the plantation sector and other types of organised agriculture (e.g. corporate or cooperative farming) and covers a very large part of agriculture.

2.20. The employees with informal jobs generally do not enjoy employment security (no protection against arbitrary dismissal) work security (no protection against 12

Expanding employment in the Indian economy

cent between 1999-2000 and 2004-05. These workers are mainly the self-employed (63 per cent). The rest of the workers in the non-agriculture informal sector are more or less equally distributed between the regular salaried/wage workers (17 per cent) and casual workers (20 per cent). The non-agriculture sector is also predominantly informal and the share of the informal sector has increased to nearly 72 per cent in 2004-05, an increase of 4 percentage points from 68 per cent in 1999-2000.

accidents and illness at the work place) and social security (maternity and health care benefits, pension, etc.) and these characteristics can be used for identifying informal employment. 2.21. Using the definition given above, the Commission has prepared direct estimates of employment in the unorganised sector based on its definition given earlier. These have been discussed in detail in two reports of the Commission (NCEUS 2007a, NCEUS 2008a). The total employment (principal plus subsidiary) in the Indian economy was 456 million, of which informal sector accounted for 393.2 million (Table 2.3). This direct estimation shows that the unorganised sector constituted 86 per cent of total workers in 2004-05 (as was the case in 1999-00 as well). Of the 393.2 million unorganised sector workers, agriculture accounted for 251.7 million and the rest 141.5 million are employed in the nonagriculture sector.

2.24 Turning now to informal workers, as far as the informal or unorganized sector is concerned, only about 0.4 per cent of the workers in this sector were estimated by us as being formal workers in 2004-05 in the sense that the regular salaried/wage workers in the sector were receiving social security benefits like Provident Fund. All the rest were informal workers numbering 391.8 million. In the formal/organized sector, we have estimated the number of formal and informal workers to be 33.7 million and 28.9 million respectively in 2004-05.

2.22. The agriculture sector consists almost entirely of informal workers who are mainly the self-employed (65 per cent) and the casual workers (35 per cent).

2.25 We have earlier shown the very interesting relationship between the formal/informal sector and formal/informal employment which we again highlight here. The total employment in the economy has increased from 396 million to 456 million between the two NSS rounds in 1999-00 and 2004-05. The change in the

2.23 The percentage of non-agricultural worker in the informal sector rose from 32 per cent to 36 per

organised or formal employment has been marginal (i.e. 33.6 million to 35.0 million). Therefore, the increase in total employment has been of an informal kind i.e. 58 million (from 362.8 to 420.7 million) or 16 per cent. However, if we view the increase from a sectoral point, employment increased by 7.7 million or 14 per cent (from 54.9 to 62.6 million) in the formal sector. What this means in simple terms is that the entire increase in the employment in the organised or formal sector over this period has largely been of informal in nature i.e. without any job or social security. This constitutes what can be termed as informalisation of the formal sector, where any employment increase consists of regular workers without social security benefits and casual or contract workers again without the benefits that should accrue to formal workers. 2.26 A comparison of the estimate of formal sector employment made by us and the DGET estimates are quite instructive. First, contrary to what the DGET has been reporting, NCEUS does find an increase in formal sector employment between 1999-00 and 2004-05 (from 54.9 million to 62.6 million). Second, our estimates of formal sector employment (in total workforce) are higher – 13.7 percent in NCEUS estimates and only 5.8 percent in DGET estimates. However, our direct estimates of the formal employment in the organised sector are much closer to the DGET estimates for both the comparable years (28.0 million and 26.5 million in DGET estimates while 31.8 million and 33.7 million in our estimates). This is most likely because DGET underreporting is principally confined to informal workers. Thus we not only find formal sector employment to be higher than the existing official estimates, but we also find some growth in formal sector employment over the years 199900 and 2004-05. But the share of formal employment in the total employment has declined, or conversely, the share of informal employment in total has increased.

What explains lack of growth in Formal Sector employment? 2.27 The Commission’s estimates of informal and formal employment in the organized sector indicate that a substantial restructuring of employment relations is under way in the organised or formal sector, not

captured by any of the earlier studies and reports. Some of the trends that we have observed appear to be part of the international trend towards greater flexibility of employment, unbundling of manufacturing employment (leading to outsourcing of various services earlier enumerated in the manufacturing sector and hence tertiarization of employment), and an expansion in other types of outsourcing and contract services in both the secondary and tertiary sector. Some of these trends have been facilitated by the growth of telecommunication and IT services. Overall, this has led to a growth in the share of employment in the informal sector in industry and services along with growth in informal employment in the organized sector. 2.28 We therefore need a careful consideration of the data that emanates from sources such as the ASI which provide employment estimates based on workers/ factories maintained on the factories. However, both the overall trend in ASI employment and the variations in inter-industry employment retain considerable significance. Based on this data, we observe that the organized industrial sector has seen overall growth in gross value added and worker productivity with little growth in employment. It therefore follows that growth is principally due to the rising capital intensity of the industrial sector. Explanations therefore focus on why the organized or formal industrial sector has witnessed rising capital intensity. 2.29 These explanations naturally vary between the public and private sectors. In the case of the former, the sector has been subjected to change in policy involving restrictions on technological upgradation (e.g. Indian Telephone Industries) and investment of surpluses while facing greater competitive pressures, privatization and closures of sick units leading to shedding of manpower. The consistent data series that this Commission created for organized manufacturing show that the public sector shed 0.86 million workers while the private sector shed 0.68 million workers between 1996-97 and 2003-04. The comparative estimates of employment in the formal sector as available from DGET and as estimated by NCEUS from NSSO data for the years 1999-2000 and 200405 are given in Table 2.4. 14

Note: Total workforce estimates are based on NSS Employment-Unemployment Surveys in the respective years and include informal sector workers. Source: (1) Ministry of Labour & Employment (DGE&T) (2) NSSO 38th, 50th and 61st Round Survey on Employment-Unemployment. Computed.

2.30 In the case of the private sector, while different arguments have been advanced for the 1980s and for the 1990s and beyond, a common argument (often described as central) that is made for both periods is that entrepreneurs have been encouraged to take a capital intensive route due to excessive labour market rigidity and institutional features of formal labour markets. Three features are singled out in this context viz. inability of large firms (employing more than 100 workers) to retrench workers without securing government permission (under Chapter VB of the Industrial Dispute Act, introduced in 1976 and amended in 1982); inability of firms to acquire a flexible labour force through contract arrangements, since the relevant Act restricts contract labour only to designated “non-perennial” activities; and the industrial relations environment constituted by the Trade Union Act 1926, the Industrial Dispute Act, and a plethora of other laws which significantly raises the transaction cost for employers. The Planning Commission (2001) offers a clear statement of the above views and the need for “labour reforms”, comprising changes in these three areas.

number of studies, including those carried out specifically for this Commission (Nagaraj 2007, Jha and Saktivel 2007, Chandra 2007 and Papola 2008), shows that in the recent period, (i) there were hardly any cases where firms were refused permission to retrench workers; (ii) the percentage of contract workers has steadily increased, although this increase has been very sharp in states which have made changes to the contract labour legislation; (iii) the industrial relations climate has visibly improved due to a number of factors and this is shown in reduced number of days lost due to strikes. We, therefore, do not consider labour reforms as a major impediment to expansion in employment in the organized or formal sector. This is also shown by the fact that a number of industries have indeed shown reasonably significant increases in employment (see Kannan and Raveendran 2009). Nonetheless, as long as labour laws on the statute books are restrictive, employers may still bear a cost and may simply avoid hiring labour to circumvent transaction costs. In any case, the actual functioning of the organized sector labour market, does not obviate the need to consider issues of income security, job security, conditions of work, industrial relations etc. balancing the needs of workers, employers and the industry. The Commission has therefore considered these issues and has made a number

2.31 The evidence for the 1990s based on the ASI data for organized manufacturing, summarized in a 15

The Challenge of Employment in India

of recommendations in Chapter 7.

2.34 However, given the linkages between formal and informal employment, our interest is not only to understand the growth in employment separately in the formal and informal sectors, but also to examine how growth has impacted overall on employment, howsoever measured.

2.32 The work carried out by this Commission and some of the studies commissioned by us show that there are other important reasons which are responsible for rising capital intensity and slow growth in employment. First, the product composition of exports has been in favour of higher capital and skill intensity (Goldar 2009, Chandrasekhar 2009). Second, both Kannan and Raveendran (2009) and Chandrasekhar (2009) have shown that the expansion in domestic demand has been in favour of products demanded by high income groups, such as automobiles and white goods, whose consumption has grown at a much higher rate, due to rising incomes and credit induced expansion in demand. There has been a shift in demand in favour of those goods demanded by the newly rich classes which has been made easy by a rather aggressive pursuit by banks expanding personal finance loans. This satisfied the demand for products which are similar to ‘foreign goods’ that was not earlier satisfied since the enterprises also have to produce goods, which would be similar to those that could now be imported. These product groups are on the average more capital intensive. Further, there is a view that the cost of capital has fallen relative to labour encouraging firms to substitute capital for labour (Chandrasekhar 2008, Goldar 2009). Interestingly, this has happened in a period when share of wages in value added has consistently declined 10 and real wages of workers have been virtually stagnant .

2.35 For our purposes, we have focused on employment in 1983, 1993-94 and 2004-05 for which NSS data estimates are considered more comparable. We have also used two measures of employment – Usual Status which is the most commonly used measure, and an alternative measure discussed earlier based on the Modified Current Weekly Status (MCWS). Details of employment based on these measures are provided in Chapter 4. Our results show clearly that although the growth rate of GDP increased in the latter period (199394/2004-05) the rate of growth of employment declined across all measures. Moreover, the unemployment rates have shown a secular increase (Table 2.5). 2.36. Other evidence analysed in detail in the Report on Conditions of Work and summarized in Chapter 6 of this report also does not show any signs of labour market tightening. In fact, as discussed earlier, the rate of growth of wages in this period has been lower than in the earlier decade. We have also made reference to increasing informalisation over the recent period as well as other attributes of employment such as working hours, occupational safety etc. In short, available evidence suggests that the higher growth in the post reform period did not translate into the same rate of improvement in the quantity or quality of employment, but at the same

Growth and Employment 2.33 The Indian economy has experienced fairly high growth rate under different policy regimes (over close to three decades.) We have seen above that as per one set of data sources (EMI, ASI), the organized sector has experienced little growth in employment in these years. In the alternative (Commission’s) estimates, formal employment in the organised manufacturing sector did not record any growth during 1999-2000 to 2004-05 though there had been growth in the formal sector. The formal employment in the entire formal sector also recorded only a marginal growth as compared to a growth rate of 2.66 percent in the formal sector employment.

Table 2.5: Unemployment Rates over the Years based on Different Measurements Measurement

10 Share of wages in value added has declined from 32.2 percent in 1992-93 to 20.9 percent in 2004-05. The growth in real wages of workers during the above period was just 0.27 percent. 16

Expanding employment in the Indian economy

the National Sample Survey Organisation (NSSO) are usually available with a time lag of over two years. The estimates available from such surveys are also generally not comparable with those of regular quinquennial surveys because of changes in the sampling design and thin sample size. Further these surveys are not conducted in some of the years. At the time of writing this report, EMI and ASI data available till 2005-06 do suggest some recouping of employment in the organized sector after 2003-04.

time, changes in modes of employment. Overall an important change in the mode of employment has been an increase in the share of self-employed (from 54.72 percent in 1993-94 to 56.61 percent in 2004-05). When the working poor are unable to find wage employment, they resort to some work by creating their own employment in such types as street vending, taking up home-based work or assisting earning family members. At the bottom of the working poor, this indeed is a sign of distress as shown in the slow down in the growth of earnings of the wage employed (see Table 2.2). In the formal sector, we have also noted the declining share of wages in the organised manufacturing sector. Except a top but thin layer of managerial and supervisory jobs in the corporate segment of the manufacturing and service sector whose impressive gains and annual growth in salaries are news for celebration in the elite media, the picture that emerges for an overwhelming majority of Indians is one of extremely slow improvement or even deterioration in the quality of work.

2.38. Since ASI data are available only till 2004-05 at the time of writing this report, NCEUS commissioned two studies (Goldar, 2009, Mitra 2009) to estimate employment growth using firm level data. These have been estimated on the basis of company level information obtained from Capital line data and CMIE. Table 2.6 shows the growth in employment in Organized Manufacturing and Service sector firms from 2004-05 onwards. The growth has been calculated based on (i) the number of employees in manufacturing companies, in respect of those manufacturing companies that have reported such data (623 manufacturing firms and 256 firms in service sector.); (ii) estimated employment based on the average wage rate and employee cost for 887 firms in manufacturing and 510 firms in service sector; and (iii) CMIE data 4000 firms and 3000 firms data on manufacturing and service sector respectively. One observes that the in the manufacturing sector there has been consistent employment growth during 2005-06, 2006-07 and 2007-08 across the three different estimates. While in the service sector no clear trend is visible as the estimates is based on the largest number of firms (col. c) reports negative employment growth during 2005-06.

2.37. For four years since 2003-04, the Indian economy moved to a higher trajectory of growth but very limited evidence is available to draw a balance sheet of employment after 2004-05. No proper assessment of impact of high rate of growth of GDP on employment generation in the economy as a whole in the years following 2004-05 has been possible due to lack of relevant data sets. Unlike most other macro-economic variables like GDP, prices, international trade, foreign exchange, etc there is no regular monitoring of employment even on an annual basis. The results of annual employment-unemployment surveys being undertaken by

Table 2.6: Growth in Employment in Organized Manufacturing and Service sector Firms 2005-06 to 2007-08 (percent) Year 1

Organised Sector Employment 2

Service sector

3

4

5

6

7

A

B

C

A

B

C

1.7

7.3

2.1

18.9

13.2

-1.7

2006-07

4.0

11.7

9.9

11.5

15.3

7.7

2007-08

4.0

5.4

-

8.2

11.6

-

2005-06

Note:The three sets of estimates based on company level information have been worked out in the following way. Cols. (A) and (B) are based on Capitaline data. Col. (A) uses data on the number of employees in respect of those companies that have reported such data Col. (B) is based on estimated employment by using wage rate and wage cost as reported Col. (C) is based on growth in wages and salaries reported in the CMIE publication, Corporate Sector. The number of firms for which relevant data was available were 623, 256, 887, 510, 4000 and 3000 under columns 2 to 7 respectively. Source : Goldar (2009), Mitra (2009) 17

The Challenge of Employment in India

2.39. It appears likely that after the restructuring of employment that took place in the earlier period, the high rate of investment and capacity expansion in this period may have led to a recouping/growth of employment in some sectors of the organized economy, reversing the earlier trend.

showed an average annual rate of growth of 0.9 percent in work force as compared to 2001-02. 2.41 Thus the evidence on the growth of employment in the informal sector, as well as growth of total employment in the period since 2004-05 is quite mixed, with some sources suggesting an increase but that too over a longer period. We, therefore, undertook an alternative exercise to estimate the workers by industry, sector and status of employment based on employment elasticity observed during 1993-94 and 2004-05. The detailed methodology is given an Appendix to Chapter-6. The employment estimates for each of the years upto 2008-09 by formal and informal sectors are given in Table 2.7 and the annual growth rates are given in Table 2.8. While the over all growth in employment in 2005-06 over 2004-05 was 3.16 percent, it was 1.7 percent in the case of agriculture, 4.67 percent in the case of industry and 4.97 percent in the case of services. The growth in the informal sector workers was significantly higher than that in the formal sector workers in all the industry segments. The same trend was continued in all the years upto 2008-09 for which some estimates of GDP were available. What this means is that the problem of low quality of employment with its attended in security will continue to loom large.

2.40. These findings are, however, not supported by the results of overall employment available from the NSS annual survey on employment-unemployment conducted during 2005-06. But this could also be due to sampling bias (more weightage of urban areas) and thin sample in the NSS survey. In the case of informal sector, we also have empirical evidence available from the survey on unorganised manufacturing conducted during 2005-06 which does not show any increase in employment as compared to the earlier such survey conducted during 200001. But this, however, quite contrary to the results of the Economic Census conducted during 2005. Though Economic Census by itself is not a good source for assessing growth in employment over the years, it showed an average annual rate of growth of 4.6 percent in workers in the informal manufacturing sector between 1998 and 2005. In the case of informal sector services, results of the survey on unorganised sector services conducted during 2006-07

Table 2.7: MCWS employment estimates (in million)

Agriculture

Industry

Services

Total

Sector

2004-05

2005-06

2006-07

2007-08

2008-09

Formal

4.98

5.00

5.02

5.04

5.06

Informal

208.03

211.58

213.98

216.98

218.53

Total

213.02

216.58

219.00

222.02

223.59

Formal

23.23

23.91

24.69

25.31

25.72

Informal

54.84

57.82

61.44

64.22

65.85

Total

78.07

81.72

86.13

89.54

91.57

Formal

30.43

31.06

31.75

32.43

33.06

Informal

79.61

84.45

90.05

95.68

100.87

Total

110.04

115.51

121.80

128.10

133.94

Formal

58.64

59.97

61.46

62.78

63.84

Informal

342.49

353.85

365.47

376.88

385.26

Total

401.13

413.82

426.93

439.66

449.09

Source: Estimated by NCEUS. 18

Expanding employment in the Indian economy

Table 2.8: Growth Rate in MCWS employment

Agriculture

Industry

Services

Total

Sector

2005-06 / 2004-05

2006-07 / 2005-06

2007-08 / 2006-07

2008-09 / 2007-08

Formal

0.41

0.35

0.36

0.32

Informal

1.71

1.13

1.40

0.72

Total

1.68

1.12

1.38

0.71

Formal

2.90

3.29

2.53

1.61

Informal

5.43

6.27

4.53

2.53

Total

4.67

5.39

3.96

2.27

Formal

2.07

2.22

2.14

1.95

Informal

6.08

6.64

6.24

5.43

Total

4.97

5.45

5.17

4.55

Formal

2.25

2.49

2.15

1.68

Informal

3.32

3.29

3.12

2.22

Total

3.16

3.17

2.98

2.15

Source: ibid.

2.42 The growth trends have been sharply reversed since the third quarter of 2008-09, following the international recessionary crisis. Along with a reversal in the growth trends, there has been a sharp decline in hiring in the formal or organised sector, and there is evidence that large numbers of informal workers, both in the organized and unorganized segments have lost jobs. While quantitative estimates are difficult, this Commission has shown that the impact of the crisis has been very sharp in export intensive industries and the construction sector, but downside effects have been felt across the entire economy (NCEUS 2008c).

the micro and small enterprises that will lead to a more inclusive growth. All these require, in our view, urgent interventions of the type that this Commission has recommended from time to time.

Some Implications of the Growth Pattern for Incomes 2.44 Although the growth that we have observed has not led to an improvement in the employment situation, the fact that the rate of growth has exceeded the rate of growth of employment by nearly 4.5 percent, implies that per worker incomes (noting that threefifth of the workers are self-employed) should have improved appreciably in recent years. However, we have demonstrated that this has not happened to the extent expected. We have carried out an analysis of the population by categories of well-being, in which we have divided the population into six groups and have termed the bottom four (below twice the poverty line) as “Poor and Vulnerable”, and the two groups above this level as “Middle” (between 2 and 4 times the poverty line) and “High Income” (above four times the poverty line). We have seen how the population has shifted between these groups between 1993-94 and 2004-05. The results were reported in our Report on Conditions of Work (NCEUS 2007a; for a detailed

2.43 Even if the growth revives it is unlikely to reach the high trajectory seen in the last four years any time soon. This has necessitated new policy stances in order to protect and promote growth in the informal sector which has the potential to grow, given a level playing field especially in accessing credit, technology, marketing and skilled workers. It could then transform from a low productivity/poor working conditions sector to a dynamic one characterized by increasing productivity and decent conditions of work. This calls for a change in the composition of investment and growth in the years to come. Special focus is called for to enhance public investment in agriculture and in such public and collective infrastructure targeted at 19

The Challenge of Employment in India

analysis see, Sengupta et.al. 2008). In this period, the share of the Poor and Vulnerable population fell by to a small extent – from 82 per cent to just 77 per cent but their numbers increased from 733 million to 836 million. The other side of the picture is the increase in the Middle and High Income group from 18 to 23 per cent that now totals 254 million compared to 163 million in the early nineties. More significantly, there has been a very noticeable growth in the consumption of the Midd le and High Income groups. The compound rate of growth of consumption of these two groups has been high; 4.3 per cent and 6.2 per cent a year respectively compared with less than one per cent increase a year in the consumption of groups identified as the “Extremely Poor”, “Poor” and “Marginal”. Thus, the growth pattern has increased consumption inequalities, reducing the benefit to the poorer segments. These segments, we have shown, consist predominantly of the informal workers, among whom the socially deprived groups (SC/ST, OBC and Muslim) and women are over-represented. 2.45 Although this Commission has not carried out a full analysis of changes in the various dimensions of inequality, its analysis shows that growth has not percolated down equally to all sections of workers. First and foremost, there is growing disparity between sectors – agriculture (which is principally unorganized) and non-agriculture. Further, as we have shown in the Conditions of Work Report, wages of both casual and regular (manual) workers have grown much more slowly in this period. In the organized sector, ASI data show a decline in the share of wages in value added (excluding managerial and supervisory employees) (Nagaraj 2007, Kannan and Raveendran 2009, Chandrasekhar 2009). Several studies have also shown an increase in urban-rural and inter-regional inequality (Sen and Himanshu 2004 , Mahendradev and Ravi 2007, Deaton and Dreze 2002) 2.46 That there are several domains of inequality in India is quite well known. Most studies have examined not only the regional and gender dimensions of inequality but also income inequalities. The reality of social inequalities arising out of social identity is also something quite familiar to the people at large.

What is not so very clear is the relative dominance of one inequality over another. Analysis based on the empirical work of this Commission as well as from other sources suggests that social inequality arising out of social identity overwhelms all other inequalities, especially regional and gender. And this is in relation to the parameters of basic human development and capability such as chronic poverty, health, housing and basic education (see Kannan 2008). Viewed in the light of such a ground reality it is no wonder that the impressive growth performance has not led to any substantial improvement in the living standards of the poor and vulnerable sections of the population, seventyseven percent of whom lived on an average consumption of less than Rs. 20 per day in 2004-05. Here again, what we have found is a systemic and hierarchical segmentation. The typical ordering in this pyramid is: Scheduled Tribes and Castes at the bottom, Muslims and Other Backward Castes at the middle and the rest called Others at the top. Of course, each social group contains an upper crust, or what we call Middle and High Income segment (creamy layer?), but their proportion increases from 12.2 percent for STs and SCs, 15.5 percent for Muslims, 20.1 percent for OBCs and 45.2 percent for Others (as of 2004-05). 2.47 As our work progressed, what we have found, from the point of the working population, is the emergence of a new dualism in terms of informal and formal economies that basically connotes the quality of work. The unique Indian characteristic in this new dualism is what we have called systemic and hierarchical segmentation reflecting the hierarchically stratified nature of the Indian society. While the democratic polity seems to have contributed to a widening of the space for political inclusion, the concomitant process of economic inclusion is, it seems to us, way behind.

The Informal Workers 2.48 The workers in the informal economy are clearly the overwhelming proportion of the workforce and most of these (except a stratum at the top) suffer from various forms of insecurities and vulnerabilities. It follows that policies have to focus on improving 20

Expanding employment in the Indian economy

their conditions. However, the extent to which policy should focus upon increasing the share of the workforce in the organized sector has been a matter of some debate.

employment in these sectors has increased. Further, there was not much increase in the share of formal employment, which declined as a percentage of the workforce.

2.49 The two major reports on employment creation (Planning Commission 2001, 2002a) have both considered the burden of employment expansion that could fall on the organised sector. Both reports reject the possibility of a net expansion of employment in the public sector (although the Special Group does project an increase in public sector employment in some sectors such as social services). Given the size of the private organized sector in the EMI estimates, both reports concur that even with very significant rates of growth in this sector (10-15 percent), the burden of employment would still be on the informal sector. But these two reports differ significantly in their emphasis on the formal/organized sector. The Task Force focused on policy reform (in the shape of labour reform) which could improve the growth of employment in the organized sector, drawing criticism from the Special Group which has argued that policies need to focus on the unorganized sector since this sector will necessarily take up the burden of additional employ ment. This is an approach which this Commission accepts, but with some differences.

2.51 The bulk of organised sector employment is paid employment, consisting of regular/salaried workers and casual workers. The bulk of unorganised sector employment is self-employment, followed by casual employment generally conceded to be of poor quality. Since the proportion of employment in the informal sector in industry and services is increasing, this has an implication for the overall quality of employment in these sectors (the agricultural sector being largely informal in any case). 2.52 An important issue is whether the organized sector produces better quality employment, even if such employment is informal. In the Report on Conditions of Work, we have analysed these issues in great detail. 2.53 As far as casual workers are concerned, we find no difference in their wages and working conditions regardless whether they are engaged in the organized sector or the unorganised sector. There is also a sharp distinction between the daily earnings of informal regular workers and the formal workers in the organised sectors, with the earnings of former being significantly lower. In fact, the informalisation of employment that has occurred in the organized sector has taken place principally due to changes in the employment conditions of regular workers and has resulted in a decline in daily wages of regular workers in many sectors.

2.50 As explained earlier, our base level scenarios are different from those used in the two reports since we have used direct estimates of the organized sector. According to our estimates, the non-agricultural private and public organized sectors constitute 7.2 percent and 5.21 percent of the total workforce (together 12.4 percent) respectively in 2004-05. But when we consider the formal workers in the organized non-agricultural sector, the picture changes. Formal workers in the organized private sector constituted 2.43 percent of the workforce, while formal workers in the public sector constituted 4.33 percent of the workforce in 2004-05. Moreover, between 1999-00 and 2004-05, while total formal/organized sector employment increased, we note that the rate of increase in organised sector employment is still less than unorganized sector employment in the industry and services sectors and that the share of informal sector

2.54 However, it may be argued that since wages of (informal) regular workers is higher than that of casual workers, and since the organized sector employs a higher proportion of regular workers, this composition effect still implies an improvement in the quality of employment in the workforce. 2.55 The Commission’s Report on Conditions of Work has also examined the attributes of different types of workers, including regular and casual as well 21

The Challenge of Employment in India

as formal and informal. We have found that these workers are segmented in different sectors (agricultural-nonagricultural) and types of work depending upon their levels of education, their asset status, and social identity. A higher level of education and skills increases the probability of a worker being engaged as a regular worker, and in the organized sector. In other words, it is expected regular workers in the organised sector get a premium on account of their education and skills, but the results show that this premium is considerably reduced due to their informal work status. We have already noted that these workers have neither job security nor social security. From time to time, other studies have brought out various other concerns regarding their working conditions. Thus from the point of view of improved well being we are justified in focusing on the issue of informal work status in the organized sector. 2.56 Our main focus, however, is the poorer informal workers in the informal or unorganized sector. We have shown the conditions of work of these workers, focusing on the changes that have taken place in the recent period, on the segmentation of workers, and the conditions of the disadvantaged workers (migrants, women workers, child labourers, bonded labourers). Based on computational amenability of statistics relating to the informal sector, it is reasonable to take informal sector as a good proxy for informality in the economy. Conversely, we take the formal sector as a good proxy for the formal economy. Such a division gives us (see Box 2.1) the characteristics of these two sectors and their inequality ratios that sums up the extent of dualism in the Indian economy. 2.57 Thus, this Commission’s focus is the universe of informal workers, both in the unorganized and organized sectors. We however recognize that there are many segments of these workers, but while attempting to understand the reasons of such segmentation, we have focused on the more vulnerable and poorer of these segments. This universe (of informal workers) has grown in absolute numbers as well a share of the total workforce and the Commission’s recommendations are designed to cover this group of workers.

The Approach of NCEUS 2.58 The structure of an economy determines to a large extent economic performance, including volume and nature of employment, growth and inflation. There cannot be any general policy that affects all sectors and classes equally in the same direction. Policy is always specific with differential sectoral, structural and distributional implications. In an unequal society like India, a general policy of growth and employment would create winners and losers; some industries would prosper while others would be left behind; some workers may face better prospects while others remain unemployed or underemployed. Any general policy of development will favour the already better off sectors, regions and workers. Growth is never equally shared in an unequal society; not much trickles down in real life i.e. when it does it is at a snail’s pace. All policy analysis accordingly would involve normative judgment as to who the policy is trying to benefit. For example, the mainstream solution of unemployment is to accelerate investment via incentives such as tax breaks and cut interest rates and increase effective demands via tax cut, unemployment insurance or some other forms of spending. Realizing implicitly that such an approach would leave many behind, it is recommended to save them from drowning via safety nets that is a form of income transfer. Growth through investment incentives inter alia increases capital’s share of national income as well as wage differential between organized and unorganized labour i.e. between formal and informal work. Such accentuation of inequality can only be precluded if the unemployed and the working poor are targeted directly through public works programmes, with the state acting as employer of last resort (ELR). It would amount to extension and expansion of NREGA to all over the country, urban and rural, and for all those seeking employment. Such immediate tackling of unemployment would more than pay for its cost. It is well known that one per cent point reduction of unemployment increases GDP by nearly three per cent points (Okun’s Law). In fact, it is the illegitimate inversion of this law by the mainstream economic policy advisers that calls for accelerated growth for solving unemployment problem. It is the bubble up approach and not trickle down one that is required here. 22

Expanding employment in the Indian economy

Box 2.1 The Sharp Divide between Informality and Formality as Revealed by Sectoral Statistics, 2004-05 This box encapsulates the dualism in India’s economy in terms of its formal and informal segments. What emerges is the structural weakness of the informal sector in terms of, education (I), productivity (F) and wages (G). These weaknesses are reflected in such outcomes as the incidence of absolute poverty. But the ground reality is that India’s large economy is dominated by a very large number and share of very small units (A) that provide employment to 86 percent of its workforce but more so for the women workers (B). Yet this sector contributes to half the national income of the country (E). The inequalities arising out of this gap should come as an eye opener. For example, for every enterprise in the formal sector of industry there are nearly 15 in the informal or unorganised sector. Similarly, for every formal sector worker there are more than 6 workers in the informal sector and this rises to more than 10 for women. Category

Source: Estimated by NCEUS based on NSS 61st Round, Economic Censes 2005 and national income data.

2.59 It is this perspective that has guided the work of this Commission to adopt a targeted approach to the problems and challenges of the informal economy and argue for a series of concerted measures to level up. By this way, the unutilized and under-utilized labour can be harnessed to enhance productivity in activities where it is abysmally low and create conditions for decent employment. At the macro level it would result in enhancing effective demand from segments of the population whose even basic requirements are not adequately met that would be truly inclusive. At the level of individuals and households, it would give them a life of dignity, with decent employment with all its attendant attributes of income and social security. 2.60 In the Commission’s view, the dualistic nature of the Indian economy has significantly moved away from the textbook division of agriculture and non-agriculture (often referred to as traditional and modern) sectors and has been replaced by the informal and formal dichotomy, cutting across the sectors. The challenge is to transform the informal sector and reduce the gap between the formal and informal. That calls for a conscious strategy of ‘levelling up’ the informal sector rather than ‘levelling down’ the formal sector; a bubble up approach rather than trickle down approach. This has been the historical experience of the now developed countries that enjoy high levels of income and human development. Public policies and instruments are therefore required to be shaped and tuned for such a process of ‘levelling up’.

2.61 Our recommendations are predicated on the assumption that the foundational requirements for such a levelling up will not only be taken up as a matter of primary obligation of a democratic state towards its citizens but also implement them effectively in a timebound manner. These relate to food security (e.g. Public Distribution System/Mid Day Meals for school-going children), health care (e.g. strengthening Primary Health Care Centres), access to schooling (e.g. the constitutional aim of universal elementary education) and housing. Based on this assumption, the Commission has examined the twin issues of conditions of work and promotion of livelihood in the light of the high congruence between the informal economy and the poor and vulnerable in India. The operational part of the strategy of levelling up, in our view, is to create a social floor and nobody is allowed to fall below that level as a matter of social priority and a bottom line of our developmental programmes. 2.62 The three pillars of the social floor envisaged by the Commission relate to universal minimum social security, setting a statutory National Minimum Wage and minimum conditions of work (for paid workers). 2.63 On the issue of social security, the Commission has taken the position that a minimum level of social security should be an entitlement backed by national legislation. The proposals of the Commission have been examined by the government and a national legislation 24

Expanding employment in the Indian economy

represent the lowest level of wage for any employment in the country. This wage shall be applicable to all employments presently not covered under the Minimum Wages Act of the state concerned, and would be applicable to both wage workers and homeworkers. Even with respect to the employments covered under the Minimum Wages Act, the state government has to ensure that the Minimum Wage fixed under the Minimum Wages Act, is not lower than the National Minimum Wage. In case the prescribed Minimum Wage under the Minimum Wages Act is lower than the National Minimum Wage, the state government shall immediately amend the prescribed Minimum Wage, to bring it in conformity with the National Minimum Wage. The general principles in the fixation of the National Minimum Wage will be the minimum basic needs of the wage worker and the homeworker and his/her family. The Commission has examined and elaborated on the relevant principles which should go into the fixation of the national minimum wage as well as the modalities for doing so in its Report on Conditions of Work.

has been adopted (Social Security for Unorganised Workers Act 2008). This legislation falls short of giving an entitlement of social security to all eligible unorganized workers as recommended by the Commission, although it represents a significant recognition of the principle advocated by the Commission. We believe that the process has only begun and it will be taken to its logical conclusion of universal social security. 2.64 The issue of ensuring minimum conditions of work for all paid workers has been examined by this Commission in its Report on Conditions of Work. The recognition of the need to ensure socially acceptable conditions of work is based on the basic principles of moral philosophy and human dignity and rights, which have also been adopted as international covenants by bodies such as the International Labour Organisation and others concerned with human rights and development. In practice they have been followed at varying pace in different countries dictated by, among other things, social norms and the resultant national ethos governing development and human dignity. In India the basic principles governing state policy as enshrined in the Constitution, directly or implicitly, ask for ensuring these conditions for all workers. They have also been put in practice by passing several legislations prescribing the principles and procedures to be followed by enterprises in the employment of workers. Some of them apply to all workers but most cover only the workers in larger enterprises, namely, those employing more than a certain number of workers. In view of the fact that the conditions of work prevailing in the unorganised sector are found to violate some of the basic tenets of human dignity, these assumptions have been examined by us for their validity and for finding ways of ensuring the minimum standards at workplace for all the workers. We need to add that there are also strong economic arguments for ensuring minimum conditions of work as these are consistent with higher productivity, growth and economic development.

2.66 The Commission has also examined the conditions of different groups of workers in the labour market who are subject to discriminatory practices and exceptional disadvantages which are justified on different grounds such as dexterity or differentials in productivity, The Commission has rejected these arguments and has taken the view that the existence of social discrimination and social segmentation, along with the existence of unacceptable forms of work such as child labour and forced labour militates against growth and development, and that it is the duty of the State to ensure that the grounds for such treatment are demolished. We have proposed two legislations covering agricultural and non-agricultural workers, which provide minimum conditions of work to all paid workers including home workers and which, if implemented, should go a long way in establishing minimum conditions of work for paid workers.

2.65 The Commission is of the clear view that minimum wages will have a positive impact both on employment and on growth of the Indian economy and will also be conducive to reducing poverty. It has, thus, recommended the introduction of a National Minimum Wage with statutory backing which shall

2.67 Finally the issue of a social floor is related to issues related to expanding employment and employability and this is the subject matter of an agenda for livelihood 25

The Challenge of Employment in India

promotion. Given the breadth and complexity of these set of issues, these were discussed in the Report on Conditions of Work. Credit and financing related issues were the subject mater of two subsequent reports and another report dealt with the livelihood promotion of marginal and small farmers. The second part of this report develops this agenda further. 2.68 The Commission recognizes that livelihood promotion is the only sustainable route through which we can deal with the issues of conditions of work and related aspects of poverty and vulnerability of those who are called the self-employed. The reality of the selfemployed varies from sector to sector, and depends on factors such as size of enterprise and capital invested. At the margin, their conditions of work are similar to the wage workers, and they strive to make a meagre income by ‘self exploitation’ through lengthening the working day. For the wage workers, too, especially those working in the unorganised sector, the conditions of work can not be divorced from the conditions of the small enterprises (usually run by the self-employed) in which they are employed. Hence, the promotion of livelihoods and the growth of enterprises have relevance for them as well. 2.69 The fact that the self-employed form the majority of workers in the Indian economy has not, so we feel, sufficiently dawned in the popular consciousness. In agriculture, the self-employed are the farmers who constitute 64 per cent of the total agricultural workers. Within the category of farmers, 84 per cent are marginal or small farmers. Outside agriculture, the self-employed constitute around 63 per cent in the unorganised sector. This includes the own account workers, assisted by the family workers (also referred to as unpaid) and those who employ one to nine workers. 2.70 Livelihood issues are also related to one’s capabilities, access to assets and entitlements as well as opportunities for income generation. We have referred to this in our various reports and have highlighted the need for public policy to focus on provision of basic education, health, housing, basic amenities etc. We have also outlined measures that need to be taken in these areas in the context of the present economic crisis (NCEUS 2008c). But we have not been able to consider

the detailed steps needed to ensure that the basic entitlements of citizens are met. 2.71 The Commission’s approach to livelihood promotion of the unorganized workers leads to a consideration of a very different type of strategy than what is currently employed. We argue for a strategy which focuses on the promotion of the unorganized sector enterprises in agriculture and non-agriculture. This strategy requires a strong supportive role of the state, and a pattern of expenditure and investment which supports the informal economy. We have proposed higher investments/expenditure on social security, employment generation, agriculture (focusing on marginal-small farmers), microenterprise support and skill development, among other areas. Our approach also calls for higher expenditure on basic education, health and public housing. This would require a reprioritization of existing pattern of revenue realization and taxes. In this era of globalisation driven by the ideology of economic liberalisation, the state is under some compulsion to support the needs of large capital, often ignoring the real needs of the economy. This has resulted in the pattern of unequal growth and the implications for the working poor that we have observed in our previous work. The economic crisis has reinforced the many recommendations of this Commission for a reallocation of expenditure and has given us added rationale to implement a strategy which can strengthen the informal economy.

Commission’s Approach in this Report 2.72 The disconnect between growth and employment that we have observed convinces us that our strategy of development has to focus on an employment centred strategy in both its dimensions of quality and quantity. Once the problem is approached in this fashion, the transformation of the informal economy becomes a key issue. 2.73 The quantitative dimensions of the problem of employment have been the subject of debate, sometimes with disagreements even within the same institution, as shown in the divergence of views between the Planning Commission’s Task Force and its Special Group. In our previous reports, we have used a consistent set of definitions to estimate the size of the informal or 26

Expanding employment in the Indian economy

their problems. There is still a considerable productivity gap with respect to small holdings which can be reduced. Other important issues involve addressing gender issues in agriculture and removing constraints on female farmers to undertake farming. Most significantly, this Commission has shown that over the years, marginalsmall farmers have become far more predominant in Indian agriculture comprising 84 percent of all farmers and producing half the agricultural output currently. We have recommended a number of steps to strengthen the small farm economy while simultaneously also equipping these farmers and their family members to move out of agriculture on favourable terms.

unorganized sector and of informal or unorganized employment in India. This, and our detailed analysis of conditions of work, has led to a resurgence of interest in scholars, civil society actors and policy makers in the quality of employment. 2.74 Our work so far has principally been based on the concept of Usual Status employment. This concept tends to overstate employment and understate unemployment. It also does not provide a handle with which we can estimate underemployment. In this report we have used an alternative concept of employment, called the Modified Current Weekly Status (MCWS). The MCWS allows total employment to be partitioned between persons with different types of employment profiles, and uses a different and somewhat more stringent condition of defining an employed person. Using this concept as an alternative, we have examined growth rates in employment and have made an assessment of future employment creation requirements.

2.77 The remaining informal employment is in industry, trade and services. The expansion of employment in each of these sectors is presented with considerable challenges in the present context, which we have briefly discussed in the Report on Conditions of Work. We have extended our analysis of two of these sectors (manufacturing and services) using the NSS surveys on these sectors. However, we have then gone on to focus on the unorganized manufacturing sector which employs 27.8 percent of the non-agricultural unorganized sector.

2.75 These requirements are naturally based on estimates of workers who are likely to come into the labour force (the supply side). The Commission has projected labour force growth in the different states over th th the 11 and 12 Plan periods. It has also analysed the changing characteristics of the labour force in the coming years. The combination of high growth of labour force; its structurally weak characteristics, especially in terms of education and skill endowments; and low rates of growth and industrialization shows that the major developmental challenge is concentrated in a few populous and slow growing states. This leads us to examine the need for strengthening skills of the informal sector workers (which would include a package of literacy, numeracy, soft skills and vocational //skills) from the point of view of informal workers and from a regional and sectoral perspective.

2.78 This report extends the analysis carried out in the Report on Conditions of Work by a detailed analysis and assessment of the constraints and challenges faced by the non-farm micro enterprise sector called enterprises in the informal sector. This sector contributes to nearly 31.0 percent of total employment and 36.0 percent of total informal sector employment in the economy. Its share in the GDP is around 30 percent. These two basic statistics should suffice to recognize the important role played by this enterprise sector in the economy. Our analysis has brought out there are three distinct subcategories within this sector; the first is the self-employed without hiring any workers and operating with or without the assistance of family members, the second is the establishments who hire upto five workers and the third those hiring upto 9 workers. Such a gradation is also closely associated with capital investment, value addition and labour productivity i.e. the smaller the employment size the lower the value of these parameters. We then take up the most critical issue of the almost complete lack of access to credit by this sector and recall our

2.76 The agricultural sector is the largest employer, employing more than half the workforce but low productivity in the sector has made workers exit from agriculture highly desirable from a policy perspective. In fact there is a serious problem of low incomes for farmers with small landholdings and several factors, including a low level of public support in the 1990s has exacerbated 27

The Challenge of Employment in India

recommendations for the creation of a development agency for refinancing and other developmental interventions (for details see, NCEUS 2007b). This is followed by a discussion on the constraints of limited access to technology, marketing and raw materials. Finally, this report elaborates on the Commission’s proposal for Growth Poles for the Unorganised Sector, which is aimed at taking existing cluster development strategies to the next, higher level.

Concluding Note 2.79 This is the final report of this Commission. Given the size and heterogeneity of the unorganized sector and the changing nature of the issues confronting it, we have been aware since the very beginning that our contribution would be limited in coverage and scope, leaving an unfinished agenda, which no doubt will be taken up by others in the very near future.

2.80 Beginning with an identification of the nature and magnitude of the issues involved in mainstreaming development in a predominantly informal economy, we have adopted a definite three-pillared approach. Based on this approach we have made specific recommendations with respect to social security, conditions of work, and promotion of livelihoods. Our approach can be encapsulated as a strategy to expand employment (its quality and quantity) with the creation of a social floor as the first developmental priority. As we have pointed out in the preceding paras, this requires the state to reorient itself, in terms of its investment priorities, policies, programmes and institutions. More than that, it requires a more organised working class and vigilant civil society which can monitor developments and pressurize often unwilling state actors to move on a path of inclusive development.

28

Expanding employment in the Indian economy

Appendix 2.1: Employment in the Public & Private Sector by Industry (million persons as on 31 March) Year

Public Sector

Private Sector

Grand Total

Agriculture

Industry

Services

Total

Agriculture

Industry

Services

Total

1983

0.48

4.36

11.62

16.46

0.85

4.88

1.82

7.55

24.01

1984

0.49

4.50

11.88

16.87

0.82

4.69

1.84

7.35

24.22

1985

0.50

4.64

12.13

17.27

0.81

4.64

1.86

7.31

24.58

1986

0.53

4.75

12.41

17.68

0.82

4.67

1.88

7.37

25.06

1987

0.56

4.78

12.69

18.02

0.85

4.60

1.92

7.36

25.39

1988

0.55

4.89

12.88

18.32

0.84

4.58

1.97

7.39

25.71

1989

0.56

4.83

13.06

18.45

0.87

4.59

2.00

7.46

25.90

1990

0.55

4.87

13.35

18.76

0.88

4.69

2.04

7.61

26.37

1991

0.56

4.91

13.60

19.06

0.89

4.69

2.09

7.68

26.74

1992

0.57

4.92

13.72

19.21

0.91

4.79

2.14

7.85

27.06

1993

0.56

4.93

13.83

19.33

0.92

4.75

2.18

7.85

27.18

1994

0.55

4.90

14.00

19.45

0.88

4.82

2.23

7.93

27.38

1995

0.54

4.87

14.06

19.47

0.89

4.90

2.26

8.06

27.52

1996

0.54

4.84

14.05

19.43

0.92

5.25

2.34

8.51

27.94

1997

0.53

4.73

14.30

19.56

0.91

5.43

2.35

8.68

28.24

1998

0.53

4.62

14.27

19.42

0.90

5.44

2.40

8.75

28.17

1999

0.52

4.56

14.34

19.42

0.87

5.38

2.45

8.70

28.11

2000

0.51

4.49

14.31

19.31

0.90

5.26

2.48

8.65

27.96

2001

0.50

4.32

14.32

19.14

0.93

5.20

2.52

8.65

27.79

2002

0.48

4.16

14.13

18.77

0.86

5.03

2.54

8.43

27.21

2003

0.51

3.97

14.11

18.58

0.90

4.90

2.62

8.42

27.00

2004

0.49

4.03

13.68

18.20

0.92

4.65

2.68

8.25

26.44

2005

0.50

3.91

13.59

18.00

0.98

4.67

2.81

8.45

26.45

2006

0.47

3.98

13.42

17.87

1.03

4.74

3.00

8.77

26.64

Source : Ministry of Labour & Employment (DGE&T).

29

The Challenge of Employment in India

3

Employment & Unemployment in India : Alternative Measures & their Meaning Introduction 3.1 In Chapter 2, we have seen how employment has emerged as a major challenge for realising the goal of inclusive development, not just growth, in India. The employment elasticity with respect to growth has declined over the years for the economy as a whole and was almost nil for the organised manufacturing sector. The high aggregate growth has, however, compensated it to some extent. Given the emerging slow down in the Indian economy and the yet unfathomed consequences of the recession in industrialised countries, it is quite possible that the growth rate might slip back to around 6 percent per annum and even lower for the next few years unless decisive policies are taken to expand the domestic market especially that of the low income segment. 3.2 It is the view of this Commission that the employment challenge has to transcend discussions based on economy-wide aggregate variables and focus on the segments of the labour force who lack (a) adequate employment and, (b) who lack adequate income to overcome conditions of poverty and vulnerability even when they are 30

employed. We discussed the latter comprehensively and elaborately from an informal economy perspective in our Report on Conditions of Work and Promotion of Livelihoods (NCEUS 2007a). 3.3 This chapter attempts to address the issues involved in terms of quantitative indicators of the employment and unemployment situation in the country. At the outset, it must be pointed out that the critical constraint in monitoring the macro economic performance of the Indian economy is the non-availability of an annual series on employment and unemployment. This glaring gap is all the more striking when we consider the availability of reliable data on most other macro economic aggregates, some of which are available on a quarterly/monthly or even weekly basis e.g. GDP, savings, investment, inflation, money supply, exports, imports, foreign exchange reserves, external debt and so on. Data on employment and unemployment collected by the National Sample Survey Organisation’s (NSSO) through annual surveys are not considered comparable because of the thin sample size, more importantly, due to the use of sampling frames not related to

the population. We are therefore compelled to make use of the by far most reliable data i.e. the quinquennial surveys on employment and unemployment carried out by the NSSO. 3.4 While examining the quantitative dimensions of employment and unemployment in India, the Commission finds that the estimates are sensitive to the concepts and decision rules applied. Such differences are mostly a reflection of the state of a largely poor rural economy characterised by the relatively low levels of human development co-existing with a less poor urban economy with high levels of human development and regular employment for a small segment of the labour force. It is in this context that we have argued for a more robust measure of employment based on intensity of work. This has led us to a nuanced understanding of the nature of unemployment including the absence of a level of earnings that should, at the least, cover the expenditure required for crossing the low level of official poverty line. In our earlier report (NCEUS 2007a), we have argued that the official poverty line does not consider the degree of vulnerability of the households and that overcoming their vulnerability would require, from an income point of view, at least doubling of the official poverty line. 3.5 While the chapter largely deals with the quantitative dimensions, the findings provide the basis for subsequent discussions on the quality of employment especially with regard to the provision of public employment opportunities as well as protective measures (such as social security, minimum conditions of work and minimum wages) for the wage employed. It will also tie up with the discussion on promoting self employment as well as providing greater access to capital as well as other critical inputs and favourable policy environment for transforming the large segment of micro enterprises into efficient units of production.

Measures of Employment/Unemployment : Sensitivity to Concepts & Definitions Used 3.6 The Labour Force Participation Rate (LFPR), Work Participation Rate (WPR) and Unemployment Rate are a few of the major indicators generally being used to assess labour market conditions. The LFPR is obtained

by dividing the number of persons in the labour force with the total population. WPR, on the other hand, is obtained by dividing the number of persons in the work force with total population. The unemployment rate is obtained by dividing the number of those unemployed with the total number of persons in the labour force. 3.7 The decision rule by which a person is classified as belonging to labour force, work force and unemployment categories is crucial in all the above measurements. The concepts/procedures presently being used in India for the classification are: •

Usual Principal Status (UPS)

•

Usual Principal and Subsidiary Status (UPSS)

•

Current Weekly Status (CWS)

•

Current Daily Status (CDS)

3.8 Usual Principal Status: For several purposes, we need to relate social and economic variables to the enduring characteristics of the population and labour force. The labour force, in this context, is typically measured through the usual principal activity status (UPS) which reflects the status of an individual during a reference period of one year. Thus, a person is classified as belonging to labour force, if s/he had been either working or looking for work during longer part of the 365 days preceding the survey. The UPS measure excludes from the labour force all those who are employed and/or unemployed for a total of less than six months. Therefore, persons who work intermittently, either because of the pattern of work in the household farm/enterprise or due to economic compulsions and other reasons, would not be included in the labour force unless their days at work and unemployment totalled half of the reference year. 3.9 Usual Principal and Subsidiary Status: The Usual Principal and Subsidiary Status (UPSS) concept was introduced to widen the UPS concept to include even those who were outside the labour force on the basis of the majority time criterion but had been employed during some part of the year on a usual basis. In the NSS 61st Round Survey (NSSO 2006a ), all those who were either un-employed or out of labour force but had worked for at least 30 days over the reference year were treated as

31

The Challenge of Employment in India

subsidiary status workers and hence included in the labour force. UPSS is, thus, a hybrid concept incorporating both the major time criterion and priority to work status.

out of the labour force) as her/his enduring status. •

3.10 The UPSS measure was used on the ground that it was stable and inclusive: it is related to a picture emerging from a long reference period, and even those working for 30 days or more, but not working for the 1 major part of the year, were included. 3.11 By including as workers those outside the UPS labour force but had worked for 30 days or more, the UPSS estimates of labour force (which included some of the UPS unemployed and those outside the labour force) exceeded the corresponding UPS estimates by 42.8 million in 2004-05 or 10.1 percent higher than the latter. However, the number of unemployed reduced and their share in the expanded UPSS labour force became much lower.

3.13 Current Weekly Status: The concept of Current Weekly Status (CWS) has been in use in the labour force sur veys in India even before 1970, when the recommendations of the Dantwala Committee became available. It was primarily because the agencies like International Labour Organization (ILO) use estimates of employment and unemployment rates based on weekly reference period for international comparisons. In India a person is classified to be in labour force as per CWS if s/he has either worked or is seeking and/or available for work at least for one hour during the reference period of one week preceding the date of survey.

3.12 It is important to stress the difference between the UPS and UPSS measures as the latter has been used for employment projections in all the recent Plans except the Tenth Plan. The basic issues relating to UPS and UPSS measurements are the following: •

The enduring characteristic sought to be captured in UPS is how a person spends the major part of the year. The UPSS, on the other hand, seeks to place as many persons as possible under the category of employed by assigning priority to work

•

While the notion of long term attachment to particular activity status may be a valid generalization, there may be considerable number of persons for whom no single long-term activity status is applicable as they move between statuses over a long period of one year depending on a variety of factors, including cyclical patterns and random events. This possibility is eliminated from our purview when a statistical straight-jacket like UPS or UPSS is applied and a person has to select one and only one status (employed, unemployed,

1

Usual status requires a recall over a whole year of what the person did. For those in regular employment this is easy to do, but for those who take whatever work opportunities they can find over the year or have prolonged spells out of the labour force, a very complex pattern has to be recalled in order to decide what their usual status is. In this respect, a short reference period of a week has advantages.

3.14 The CWS participation rates also relate to persons and hence may be roughly compared with those obtained by using UPS and UPSS measurements. However, the reference periods are different and UPS, unlike UPSS and CWS, is based on majority time and does not accord priority to work and unemployment. The classification under CWS is based on the status of persons during the last seven days and priority is assigned to “working” over “not working but seeking or available for work” and to both “working” and “not working but seeking or available for work” over “neither working nor available for work”. The advantage of CWS is that it uses a shorter reference period of seven days and as such recall lapses are expected to be comparatively lower. Further, it facilitates easy classification and analysis by sub-rounds to identify seasonal patterns. The major disadvantage of CWS is that it classifies persons with the nominal work

However, those outside the UPS labour force, seeking or available for work for more than 30 days during the preceding 365 days, were not included in the UPSS labour force. The 30 day rule was introduced in the 61st Round. In the earlier Rounds, no such minimum cut off point was prescribed. For strict consistency, all those who were outside the labour force on the basis of UPS, but who were in the labour force on the basis of their subsidiary status, should have been included in the UPSS labour force. If the 30 day cut-off rule was applied it should have been related to labour force participation, not to work participation alone. 32

of even one hour during the reference week into work force and labour force. Similarly, a person is treated as unemployed only if s/he has been unemployed on all the days on which s/he has been in the labour force.

reported in May 2002. The Group took a different view. It argued: “…the method of estimation of employment and unemployment on the basis of the usual and subsidiary status (UPSS) used during the Ninth Plan formulation would not be of help to get any realistic estimate of the quantum of generating gainful employment in order to fulfil the Tenth Plan targets, especially given the promise for gainful nature of employment, as per the Group’s terms of reference. This is because on the basis of UPSS calculation, the volume of unemployment shown is always under-estimated since it excludes a large number who are significantly underemployed or unemployed over a major part of the referred period” (Planning Commission 2002a). It was therefore decided to switch over to the CDS. The rationale was:

3.15 Current Daily Status: The Dantwala Committee proposed the use of Current Daily Status (CDS) rates for studying intensity of work. These are computed on the basis of the information on employment and unemployment recorded for the 14 half days of the reference week. The employment status during the seven days is recorded in terms of half or full intensities. An hour or more but less than four hours is taken as half intensity and four hours or more is taken as full intensity. An advantage of this approach is that it is based on more complete information; it embodied the time utilisation, and did not accord priority to labour force over outside the labour force or work over unemployment, except in marginal cases. A disadvantage is that it related to person-days, not persons. Hence it had to be used with some caution.

“Hence, we switched over to what is called the Current Daily Status (CDS), which is conveniently one of the other options provided by the National Sample Survey Organisation for measurement of employment and unemployment. If the gainfully employed are defined as those who are near fulltime employed, then the CDS definition on employment given by the NSSO will give more realistic estimate at least directionally. Most countries across the globe use the concept close to weekly status, which again is closer to that of CDS used in this report. Within India almost all other reports from alternate sources agree that the CDS concept of unemployment is the most realistic”2.

Labour Force Measures Used in Recent Plans 3.16 The Montek Singh Ahluwalia Task Force on Employment Opportunities set up by the Planning Commission, which reported in July 2001, examined estimates of employment and unemployment generated by the National Sample Survey, based on different concepts developed by the Dantwala Committee. All four measures, UPS, UPSS, CWS and CDS were reviewed and the estimates based on all four measures featured in the analysis. It was stated that the CDS measure of unemployment is widely agreed to be the one that most fully captures open unemployment in the country (Planning Commission 2001). 3.17 The projections of the labour force were, however, based on the UPSS concept, perhaps because it related to persons rather than person-day units. 3.18 Immediately after the submission of the above report, the Planning Commission set up the S P Gupta Special Group on Targeting Ten Million Employment Opportunities per Year over the Tenth Plan Period, which 2

3.19 This approach was later adopted in the Tenth Plan (Planning Commission 2002b) document for projecting labour force and employment generation. It was justified on the ground that (a) CDS was a better measure than the UPSS to capture unemployment and under-employment and (b) it took into account the seasonal variations as the samples were surveyed uniformly over the year. Our review of these developments brings out the following points:

Ibid, p.21. 33

The Challenge of Employment in India

First, the Special Group is right in stressing that the gainfully employed should be those who are “near fulltime employed.” It does not follow, however, as the Special Group claims, that the CDS definition on employment will give a more realistic estimate at least directionally, because it cannot yield an estimate of persons gainfully employed. Under CDS, the basic classificatory unit is a person-day and the status of the same person on all the seven days is recorded. It is thus related to a composite unit of person-day and not to persons or individuals. Aggregates of person-days cannot be readily related to the characteristics of individuals who contribute to it.

•

It should provide a basis for projecting the growth of labour force, employment and unemployment over time and facilitate comparisons with expected employment generation in the economy.

3.21 In both UPSS and CWS, the priority criterion results in overestimation of the labour force and work force. This is because persons who normally remain outside the labour force (work force) most of the time would be included in the labour force (work force) if they spent just above 30 days in a year (UPSS) or one hour in a week (CWS) in an economic activity like gathering of uncultivated crops, collection of firewood, cleaning of household enterprise premises, etc. The UPSS and CWS, as currently used, therefore, have only limited value in estimating trends in employment and unemployment and projecting the labour force.

Third, the argument of the Task Force that “the difference between the unemployment rates on the Current Weekly and that on the Usual Status would provide one measure of seasonal unemployment” is difficult to sustain. The two unemployment rates are based on different labour force denominators, and many reported as working on UPSS might be outside the labour force on CWS. Seasonality in labour force characteristics is better captured by variations in CDS rates over the four sub-rounds.

3.22 It is in this context that the NCEUS 3 commissioned two experts with intimate knowledge of the Indian system of labour force surveys to arrive at an indicator that would give a more robust estimate of the employment situation as well as measure the various facets of unemployment in terms of severe unemployment, parttime employment, under-employment (including seasonal) and so on based on the existing data. By suggesting some modification to the computation of the CWS, they have come up with estimates based on what may be called Modified CWS (MCWS). A technical paper prepared for this purpose is given as Annex-3.1 to this Chapter.

Requirements of a Good Measure 3.20 The preceding discussion highlights some of the requirements of a good measure as given below:

3

In our predominantly rural, agrarian economy, it should enable us to identify patterns of seasonal changes over different parts of the year.

Modified Current Weekly Status (MCWS)

Second, the UPSS-based projections may be questioned for using a concept that overstates employment and understates unemployment. Many persons included as workers under UPSS are not really gainfully employed for much of the time.

•

•

A good employment/unemployment measure should be able to depict the baseline situation in a realistic and consistent manner, identifying those individuals who have a substantial attachment to the labour force and who spend a good part of their time at work or remained unemployed.

3.23 Unlike CWS, the MCWS takes better account of the time disposition of each individual over the 14 half days. It follows a two step procedure. First, it assigns individuals to the labour force if the majority of their half-days were in the labour force. Second, within the labour force, it uses the majority time principle to classify

individuals among the two activity statuses, employed and unemployed. Only in a few cases, where the majority time rule does not give a unique solution, the criterion of priority for labour force and employment is invoked.

based on MCWS would provide the best use of the available detailed information for policy formulation including planning exercises. 3.28 While the Commission is in favour of such a modified approach to the measurement of employment as well as the various dimensions of unemployment, we recognise the prevalence of the UPSS measure in official and scholarly publications. In some cases, as in the case of the Eleventh Five Year Plan, both UPSS and CDS measures have been used. In a sense the time disposition module of the NSSO makes it possible to apply a host of alternative definitions of labour force, employment and unemployment resulting in a family of estimates. The task of the analyst is to select those among these estimates that are best suited to the specific purposes at hand. Accordingly, the Commission prefers to report the family of estimates and look at the differences so as to get an idea of the task involved in planning for employment and taking care of the unemployed.

3.24 The decision whether a person is employed or unemployed, follows the analogy of the usual principal status. Thus a person is first classified according to whether or not in the labour force on the basis of majority time, and then applied the same majority time criterion to decide whether the person is employed or unemployed. This MCWS procedure has a definite advantage over the CWS as any person classified as employed (or unemployed) would have recorded a significant involvement (at least 2 days) in that activity and at least 3.5 days in the labour force. The concept thus enables to focus on persons with a significant involvement in the labour force and work or unemployed.

Advantages of the MCWS Approach in Labour Force Measurement

Measures of Employment & Unemployment

3.25 The MCWS participation and unemployment rates, which relate to persons by majority time, are better aggregates of current daily status information. They are based on the actual status of the person during the last seven days and not on a long recall memory of the informant as in the case of UPS and UPSS. They do not classify a person into one of the categories of employed, unemployed and out of labour force on an a priori basis but do so only after ascertaining the daily status on each of the last seven days. The classification errors are, thus, significantly reduced. The unemployment rates estimated by using MCWS would give a better representation of the situation than those based on CWS as the former is on the basis of majority time disposition within the labour force.

3.29 The Commission finds that determining whether a person is in the labour force or not and also whether s/ he is employed or unemployed is sensitive to the concept followed and the decision rule used for measurement. While the UPSS measure emerges as the broadest measurement of labour force participation, the CDS measure emerges as the one which gives the lowest measurement. Given the absolute magnitude of the labour force in the country, it is needless to stress here that the gap is quite significant to the extent of 51.6 million in 2004-05. 3.30 However, the difference is in Labour Force Participation rate is quite small for men with only two percentage points while it is as high as 7 percentage points for women (Table 3.1 and Fig. 3.1). This immediately brings into focus the nature of employment of women and their inability as well as absence of adequate opportunities to engage in stable employment not to speak of gainful employment which we shall discuss later. The gap in the case of women is largely, if not totally, due to their subsidiary status that relates to employment only for a part of the year.

3.26 Since MCWS estimates relate to persons, they can be used to project the size and composition of the labour force. They can also be used to examine labour force characteristics, using cross classifications based on individual and household characteristics. 3.27 While the different approaches and the resulting estimates are useful in illuminating different characteristics of labour force participation and utilization, the analysis 35

The Challenge of Employment in India

3.31 The same pattern is repeated when we examine the work force participation. However, the gap between the UPSS and CDS measure widens to 7 percentage points for all and 9 percentage points for women and 5 for men. Here again the absolute numbers are notable because it comes to 27.9 million men and 46.5 million women.

difference between this measure and that of other measures. Estimates based on MCWS are closer to the CDS measure and somewhat higher but lower than other estimates. Given the fact that this measure relates to individuals and not person-days, we would underline the usefulness of this measure as superior to the CDS measure. The differences in terms of absolute magnitudes are given in Table 3.2.

3.32 Since the MCWS measure is a more robust measure, the Commission would like to point out the

3.33 Similar differences can be observed in the measurers of unemployment as well. In symmety with the fact that UPSS standad provides the broadest measure of labour force and workforce, UPSS standard happens to provide the narrow-most framework for capturing unemployment. Reverse is the case with CDS standards. UPS, CWS and MCWS measures are positioned in between. The unemployment rates captued by UPSS, UPS, CWS, MCWS and CDS measures are 2.4, 3.2, 4.4, 6.7 and 8.2 percent respectively. All the measures report higher unemployment rates for fimales to males. The difference on account of gender could be seen from Table 3.3.

Measures of Non-utilization of Labour Time 3.34 Examination of the time disposition of persons over the reference week indicates that for many of them time is divided between employment, unemployment and being outside the labour force. This brings into focus the state of unemployment and potential entry into labour force in more than one dimension. We consider this as an important information base for not only understanding the unemployment problem but also planning for tackling it in a manner that would match the ground realities as they are revealed through the NSS sur veys. We classify them as (a) Severely

among non-wage earners. Hence, estimates of the size and characteristics of PTWs should be analyzed irrespective of their declared intentions regarding availability for additional work. It is quite possible that those who might not be currently interested in seeking employment for a variety of socio-economic reasons might do so when more attractive opportunities are available.

Severely Unemployed 3.35 We could identify as “severely unemployed” (SUE) persons reporting as unemployed for 3.5 days or more, i.e. a half or more of the days in the week. Whatever they may have done for the rest of the week, these are people who have been in the labour market and have clearly not done well. The SUE group is not identical to the MCWS unemployed, but a slightly different sub-set of the MCWS labour force. This is because persons who worked 3.5 days and were unemployed in the remaining 3.5 days would be classified as MCWS workers, but, for our present purpose, they would be classified as SUE, i.e. unemployed for 3.5 days. Further MCWS unemployed would also include those unemployed for a major part of their labour days though less than 3.5 days. To obtain incidence rates, the number of persons unemployed for 3.5 or more days could be divided by either the number in the CWS or in the MCWS labour force, as SUE persons would be members of the labour force under both concepts.

3.38 This group therefore may constitute partly of those who could be called potential entrants into the labour force. The Commission has been witness to such a phenomenon during its visits to several work sites under the National Rural Employment Guarantee Programme (NREGP). Many women reported as not having sought such work in the past for a variety of reasons including low wages, unattractive conditions of work and social stigma of working in another household in the same village. Many women reported their participation in NREGP because, as they put it “ye tho sarkar ka kam hai” (“this is government work”)

Underemployed 3.39 In the past, persons employed but interested in additional work were described as the underemployed. Before 1972-73, NSS results provided the current status data on hours worked and hours available. It was possible to identify those who worked for a relatively short time (typically 28 hours or less per week) and were seeking and/or available for work. The latter were described as the underemployed and this practice has been in vogue in several other Asian countries. This is, however, no longer feasible in India as time use is now on a personday basis, in terms of half days rather than clock time.

Part-time Workers 3.36 A completely different approach would be to identify persons who worked for 0.5 - 3 days in the week. They may be called part-time workers (PTWs). They might not have been interested in additional work; some might report availability on non-working days while others might not. Also some might not report availability as they were discouraged by their past labour market experiences. The incidence of part-time work is best measured in relation to the CWS work force, for not all part-time workers would be categorized as workers under the MCWS approach, but all of them would be included in the CWS work force, given the priority for work.

3.40 To estimate underemployment, we therefore propose a new measure. We take those who have worked for 3 days or less but more than 0.5 days in the week and who were unemployed for 0.5 days or more as per CWS as a proportion to the work force. This will have the effect of excluding those who did not report availability for additional work. The measure of underemployment used here is similar to the earlier one based on the number of persons working 28 hours or less and available for additional work.

3.37 It might be argued that only those part time workers (PTWs) who express interest in undertaking additional work should be considered when formulating employment policies. In practice, some might report nonavailability for additional work on account of discouragement resulting from past efforts to find work or due to the weak link with the labour market, especially 38

3.41 Commission’s estimate for the above discussed three crucial aspects of non-utilization of labour time for the year 2004-05 show that there were 28.7 million severely unemployed and 22.6 million part-time workers. They constituted 6.7 percent and 5.3 percent of MCWS and CWS labout force respectively. Only a small proportion of the labour force was underemployed (2.3 percent). The incidence of severely unemployed and parttime workers was relatively higher for females than males. However, the incidence of underemployed high for males. Table 3.4 summaries the findings.

Lack of Gainful Employment/ Underemployment by Level of Earning 3.42 The framework given by the M.L. Dantwala Committee of Experts on Unemployment Estimates for the measurement of labour force, work force and unemployment is based on time utilisation although the participation of persons in the labour force/work force is guided by the level of earning. In other words, the labour force participation rate without specifying the level of wages/earnings is only of limited use. This is one of the major shortcomings of the above framework from which comes the labour statistics in the country. 3.43 The employment-unemployment surveys being conducted by the National Sample Survey Organisation (NSSO) collect wage and salary earnings received or receivable for the work done during the reference week for those employed on a regular or casual basis. These are collected separately for each of the activities pursued by the persons in the sample households. Bonus received

or to be received and perquisites valuated at retail prices duly apportioned for the reference week are included in the salary/wages but overtime allowances received or receivable is excluded. The average earning per day can be estimated from these data sets in the case of employees. 3.44 The employees’ underemployment by level of earning can be therefore computed by comparing their daily wages with a minimum wage or a standard which is expected or required for sustenance. Based on the data sets of the latest Quinquennial EmploymentUnemployment Survey, the percentage of workers receiving an average daily salary/ wage of less than the national minimum wage of Rs. 66 per day has been computed both for casual workers and regular/salaried. It was revealed that about 80 per cent of the casual workers and 31 per cent of the regular salaried/wage workers are under-employed in the sense that they do not receive the minimum daily wage of Rs. 66. The differentials in the case of rural and urban areas and males and females are significantly large. Those casual workers in rural areas, not receiving the minimum daily wage of Rs. 66 was a staggering 84.4 per cent as against 57.2 per cent in the urban areas in 2004-05. Similarly, the proportion of females receiving less than the required minimum was 95.0 per cent as against 74.0 per cent in the case of males. The trend is similar even in the case of regular salaried/ wage employed. While the under-employment ratio for rural and urban areas were 41.8 per cent and 25.4 per cent respectively, the same for males and females were 26.2 per cent and 53.7 per cent respectively.

* Number of workers who were unemployed for 3.5 days or more in the reference week. @ Number of persons who worked for 0.5 to 3.0 days during the week. # Number of persons who worked for 0.5 to 3.0 days during the week and reported at least 0.5 days of unemployment Figures in brackets are percentages to labour/work force. The denominator is MCWS labour force in the case of severely unemployed and in the other two cases the denominator is CWS work force Source: ibid. 39

The Challenge of Employment in India

3.49 Third, the category of part-time workers consists of those who are underemployed in terms of adequacy of work. They included those reporting availability for work (the underemployed) as well as those who have not reported so but may be available for work as we have noted in the case of programmes like the NREGP. Such seekers of public employment programme would include the seasonally unemployed, employed but with very low wages and those who may have opted out of the labour market for various reasons.

3.45 In the case of the self-employed including unpaid family workers, data on earnings/ income were not being collected in the employment – unemployment surveys. This is a serious data gap on labour and employment which are important macro-economic variables. The national statistical system needs to be revamped to bridge this gap in line with the international conventions on labour statistics. The consumer expenditure block in the employment – unemployment survey schedule can be suitably expanded to collect income from self – employment and other sources. Though it may be argued that it is difficult to collect reliable data on income, such data sets could be used for assessing the quality of employment.

3.50 Fourth, the absence of gainful employment among the self employed deserves special attention since they consist of significant segments without adequate income even to cross the official poverty line. All of them are in the informal economy but many of them cannot move into wage employment because of their occupational characteristics. They would include groups such as the artisans as well as those with some capital where they would be able to use the family labour in a convenient location. These are the bottom segments of the micro enterprises sector. They, along with the more productive micro entrepreneurs with hired wage workers, would also need special focus from an employment and growth point of view.

The Measurement Used in this Report 3.46 This report uses the measurements based on UPSS and MCWS concepts for analysing the trends in labour force and its projections. Comparative estimates based on both the concepts are presented. The report also uses CWS and CDS measures for assessing seasonality, under-employment, intensity of work, etc wherever such measures are found to be useful.

Policy Implications

3.51 Fifth, the two vulnerable segments in the labour force i.e. casual wage workers and the majority of the self-employed constitute an overwhelming proportion of the informal sector in the economy. This calls for defining and estimating both the employment and the income pertaining to the informal sector, the results of which the Commission released in an earlier report submitted to the Government (NCEUS 2008a). The fact that the workers and their families in the informal sector warrant certain foundational support systems in terms of enhancing human capabilities as well as protection and promotion as workers was the theme of our earlier four reports (NCEUS 2006, 2007a and b, NCEUS 2008b).

3.47 From the foregoing discussion a number of issues emerged, which have implications for policy. First, a measure based on the intensity of work gives a reasonably good measure of the size of the labour force in India. This is closer to the CDS measure but it has the added advantage of depicting the situation of the persons concerned rather than of the person-days as in the case of CDS. 3.48 Second, the estimation of the unemployed and its different manifestations presented here is an improvement over the existing practice of reporting just the unemployment rates for different segments of the labour force. As we have highlighted, there is a segment of the severely unemployed who would be looking for more regular or stable employment. The nature of such employment would vary depending on their educational background and the rural/urban locations.

3.52 It is in this background that we present in this report an analysis of the employment situation including the likely scenario in the near future as well as a strategy for employment-oriented development that would enhance both productivity and welfare of the workers in the vast informal economy in India. 40

4

Labour Supply & Demand : Basic Characteristics of Labour Force & Work Force Introduction 4.1 We have seen in the last chapter how sensitive is the measurement of the employed and the unemployed (that comprise the labour force) to the definitions and decision rules applied. While we have to reckon with a range of estimates pertaining to a given parameter in the labour force, it is more important to find out the emerging picture with regard to a number of issues on the basis of the past trends. We have chosen to do this by examining the empirical situation for a period of two decades since the early eighties. The Commission believes that such an exercise is critical to an understanding of the challenge of employment in India, especially in a context where economic growth has catapulted to a much higher trajectory than before without commensurate improvement in employment, especially in terms of its quality such as fair wage, decent conditions of work and employment/social security. Our terms of reference to examine the feasibility of an employment strategy that takes into account the nature of and the conditions in the informal economy becomes much more important in view of the magnitude, participation rate, rural/urban distribution, education and the social identity of those in the labour force and workforce in the

41

informal economy. An added dimension at the current juncture is the likely impact of the global economic crisis on India in terms of the prospect of a slowdown of economic growth and its consequences on the employment situation. 4.2 There is hardly any reason to be sanguine about the size, distribution and participation rate of India’s labour force and by implication the composition of the informal economy. While there are some emergent silver lines such as the decline of child labour or a much slower decline in illiteracy, the challenges confronting the country are still formidable. The majority of the labour force is stuck in the rural economy. Their educational levels are much less than even the meagre average in the urban areas. Lack of education afflicts most the labour force coming from the lowest rung of the social hierarchy and women more than men. But the national aggregate data, which is what the policy makers and planners very often rely upon, conceals more than it reveals when it comes to significant regional variations. We have therefore embarked on a regional level exercise, albeit limited, to emphasize the need for understanding and factoring in national policies and planning, the regional profiles of important dimensions of the situation.

The Challenge of Employment in India

4.3 The overall picture that emerges brings into focus the enormity of the task of improving the basic capabilities of the labour force with adequate attention to regional, social and gender dimensions. There is no doubt that a thin layer at the top, urban, male and educated, has acquired capabilities to power a fast growing economy leaving behind a huge mass to eke out a precarious living in the so called informal economy. This calls for a more, not less, nuanced development planning with a long term perspective to provide a stronger foundation for development that would be inclusive.

4.6 While several factors affect labour force participation rates, they are largely determined by the working age population. It is also important as a demand side variable in view of the need for adhering to statutory requirements and international standards of work ethics. Persons in the age group of 15-59 years constitute the working age population in the context of India. It was 234.1 million in 1961, constituting about 53.3 percent of the total population. By 2001, the working age population increased to 585.6 million, raising its share to 56.9 percent of the total population. This is the result of a demographic transition over the last four decades. The increase was more pronounced in urban areas as the share of working age population rose from 56.3 percent in 1961 to 62.4 percent in 2001, an increase of 6.1 percentage points. In the case of rural population, the increase in the working age population was only 2.2 percentage points, from 52.6 percent in 1961 to 54.8 percent in 2001. The overall growth rate in the working age population since 1961 was 2.32 percent per annum as against a growth rate of 2.15 percent in the total population during the same period.

Population Growth & Composition 4.4. During a period of four decades between 1961 and 2001, India’s population more than doubled and currently it would be close to 2.7 times. As we can see from Table 4.1, the annual growth rate achieved during the ten year period from 1991 to 2001 was 1.68% in the case of rural population and 2.77% in the case of urban population. The overall annual growth rate during this period was 1.97%. The average annual growth of population during the four decades since 1961 was 2.15 percent.

Trends in Size & Composition of Labour Force

4.5 While a discernible demographic transition may be taking place in India in recent times, the pace is quite slow for the country as a whole. The growth of population has been decelerating over the decades, a trend more pronounced in the last decade 1991-2001. The share of urban areas in the total population has been, however, increasing at an average rate of about 2.5 percentage points in every ten years since 1961.

4.7 The size and composition of labour force and the changes taking place therein over the years are important parameters to be considered in the formulation of employment policies and strategies. These have been estimated on the basis of Quinquennial Employment – Unemployment Surveys undertaken by the National

Table 4.1: Size & Growth of Population Since 1961 Population (Million) Sector

1961

1971

1981

1991

2001

Rural

360.3

439.08 (2.00)

524.11 (1.79)

628.19 (1.84)

742.49 (1.68)

Urban

78.9

109.08 (3.29)

159.22 (3.85)

217.61 (3.17)

286.12 (2.77)

Total

439.2

548.16 (2.24)

683.33 (2.23)

846.30 (2.16)

1028.61 (1.97)

Note: Figures in brackets indicate average annual rates of growth. Source: Population census of India 42

Sample Survey Organization (NSSO) in 1983, 199394, 1999-2000 and 2004-05 after adjusting for state-wise and segment-wise population projections. The measure used here relates to UPSS. The estimates relating to 1 1999-2000 are considered to be not fully consistent with those relating to the other years and hence not included in most of the analysis in this chapter.

Overall Size, Growth & Composition 4.8 The labour force has been growing pari passu with the growth of population over the years. The size and growth of labour force by sector and sex is given in Table 4.2 and the corresponding percentage shares are given in Table 4.3. The total labour force of about 307.4 million in 1983 increased to about 379.9 million in 1993-94 and then to about 466.8 million in 2004-05. The net addition to the labour force during the first period from 1983 to 1993-94 was 72.5 million over a period of 10.5 years (or an average annual addition of 6.9 million), while during the second period of 11 years from 1993-94 to 200405, it was about 86.9 million (or an average annual addition of 7.9 million).

4.9 In both the rural and urban areas, the average annual addition to labour force during the second period (1993-94 to 2004-05) was higher than in the first period (1983 to 1993-94). It increased from 4.6 million to 4.8 million in the rural areas. Although the net annual addition of labour force was lower in urban areas as compared to in rural areas, the increase was much higher in urban areas (2.3 million in the first period and 3.1 million in the second period). 4.10 Annual addition of the male labour force is higher than of the female labour force, the increase in annual addition was higher for females than for males. The rural-urban differential in this respect is stark. For instance, in urban areas, the annual addition to labour force has increased in the case of both the sexes between the two periods, more so for males (1.7 million to 2.4 million for males as against 0.5 million to 0.7 million for females). In contrast, the annual addition to the female labour force in rural areas has increased in the second period (1.3 million to 1.9 million), while it has declined in the case of male labour force (3.3million to 2.9 million).

has been significantly higher at 3.12 percent as compared to 1.62 percent in the case of rural labour force. This is primarily because of the large size of rural labour force and low base of urban population. It is thus clear that a pragmatic employment strategy to alleviate poverty and vulnerability needs to have a significant focus on rural employment and its quality.

4.11 There are two kinds of skewness in the distribution of India’s labour force. First, rural labour is still predominant. In 1983, close to 80 percent of the labour force belonged to rural areas (Table 4.3). However, it reduced to 77.5 percent in 1993-94 and further to 74.4 percent in 2004-05. The average annual decrease was about 0.26 percentage points for the whole period, implying that the impact of urbanisation in the rural labour force has been minimal despite that the annual growth rate of urban labour force during 1983-2004/05

4.12 The average annual growth rate of the labour force in rural areas has declined from 1.7 percent during the first period to 1.5 percent in the second period. In contrast, it remained almost constant in urban areas, at 3.1 percent (Table 4.4).

4.13 The second skewness is the dominance of men in the labour force. Males constituted more than twice the females in the total labour force in the country (67.7 percent and 32.3 percent for males and females respectively in 2004-05). The share of males in the labour force has slightly increased while that of the females has correspondingly decreased between 1983 and 2004-05. While the share of rural males in 1983 was 50.5 percent, it declined to 47.6 percent in 200405. The share of rural females also declined during the period, from 29.4 percent to 26.8 percent. We need to note here that the average annual growth rate of the labour force in rural areas has declined for males between the two periods while it has increased for females. In contrast, growth in male labour force improved slightly in urban areas, while that of female labour force declined sharply between the two periods.

brought into relief the close correspondence between poverty, social identity and conditions of work. The LFPRs may also be expected to follow a similar pattern. LFPRs for various social groups by sex and location are presented in Table 4.6. (see Fig. 4.1). 4.16 The following picture emerges from the distribution of LFPRs: First, the labour force participation rate of those belonging to Scheduled Tribe communities has generally been the highest and that of Muslims the lowest. The difference between the two was as high as 17.2 percentage points in the aggregate in 1983 though it reduced to 15.6 percentage points by 2004-05. Those belonging to Scheduled Caste communities too were characterised by high participation rates during the period.

Labour Force Participation Rates (LFPR)

Second, the participation rates were the highest among rural and urban males, and the lowest among urban females in the case of all social groups.

4.14 The LFPRs have been remarkably stable, around 43 percent. But as can be seen from Table 4.5, there have been some changes across gender and locations with rural female participation rate registering a marginal decline during 1983 and 200405. Both urban males and females have registered increase in their participation rates.

Third, among the social groups, the participation rate is the highest for rural males from STs and the lowest for urban as well as rural females from the Muslims.

Labour Force Participation Rates by Social Groups

Four th, between 1983 and 2004-05, the participation rates in rural areas have declined in the case of both males and females from SCs, STs and Muslims. However, the decline was much higher among the SC females.

4.15 Our report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector,

Note: The group 'Others' include Other Backward Castes (OBCs), Hindu upper castes, Sikhs, Christians and other religious groups except Muslims. The participation rates of OBCs and 'Others' separately for 2004-05 are given in Appendix 4.1 Source: ibid.

Fifth, the trends in male and female participation rates vary over the years by social groups in urban areas. The male participation rate has increased among the SCs and Muslims, but has declined among the STs. While the participation rate of muslim women has gone up, that of SC and ST women has remained stagnant over the years.

4.17 Given that the LFPR is relatively high among SC/ST groups, there is every reason to surmise that this is largely induced by the poor economic conditions because these are the groups with the highest incidence of poverty and other kinds of deprivation, especially education, and they are largely located in rural areas.

4.18 We may also note here a few other features of LFPR across the four social groups comprising the total population. The trends over time in male participation rates, irrespective of the social identity, are almost similar but somewhat lower among Muslims during any year. This could be due to the age composition of the social group with a larger share of child population. The female participation rates among SC and ST groups are double and more than double respectively when compared to those among Muslim females. The female participation rates in rural areas are much higher than in urban areas among all the social groups.

Age-Specific Labour Force Participation 4.19 Given the generalized nature of poverty and vulnerability in the country, the age specific participation rates of population (Table 4.7) should be of significance not only to planners and policy makers but also to the citizens in general. The emergent scenario is as follows: 4.20 The positive development as discerned from LFPR is that the incidence of child labour is not only declining but the phenomenon would be completely eliminated by 2014 if the same pace is maintained.

Particularly notable here is the near absence of extreme forms of child labour as indicated by almost zero participation rates in the age group of 5-9 years. Child labour is now confined to the age group of 10-14 but that too has declined from around 21 percent to less than 7 percent. The rate of reduction is similar for both boys and girls. 4.21 There is also a significant reduction in participation rates in the adolescent age group of 15-19 suggesting greater access to schooling for the group. In our view, this certainly is a positive development and should be accelerated. 4.22 Over the years, the LFPRs have declined even in the age group 20 – 24, but they have fluctuated between 70.6 percent and 77.6 percent in the age groups from 25-29 to 50-54. In the age group 55-59, the participation rate was 66.9 percent in 2004-05 and did not change much over the years. In the case of older persons aged 60 and above, the participation rate declined from 42.3 percent in 1983 to 39.1 percent in 2004-05.The decline may be mainly due to increasing longevity and the consequent addition of persons in the higher age groups as many of them cease to work with increasing age. 47

4.23 Several features of the LFPR variations between the males and females deserve our attention. Firstly, the average participation rate of women in the aggregate was just about half that of men. Secondl y, while the peak level of labour force participation rate of women was about 55 percent in the age group of 35-39 in 2004-05, it was about 99 percent in the case of men in the same age group. Thirdly, there was a monotonically declining trend in the participation rates of females up to the age group of 25-29, while it was limited only up to the age group of 20-24 in the case of males over the time horizon under consideration. Fourthly, a peak level of 55 percent of the females entered the labour force only at the age group of 35-39 while about 85 percent of the males got into it in the age group 2024. Finally, only about 21 percent of the women in the age group 60 and above remained in the labour force while about 57 percent of males in the same age group were in the labour force in 2004-05. These variations in female participation rates have long been discussed in the literature, and were largely attributed to their reproductive roles along with the sociological factors that often constrain their mobility.

4.24 The declining trend of varying magnitudes in labour force participation rates up to the age group 2024 persisted in the rural areas from 1983 to 2004-05. The age-specific rates in rural areas are given in Appendix 4.2 4.25 While the declining trend over the years was sharp up to the age group of 15-19, it was moderate in the age group 20-24. The participation rate reached the peak of about 81 percent in the age group 35-39 and remained almost at that level in the age groups 40-44 and 45-49. In the age groups of 25-29 and 50-54, the participation rates were about 75 percent and 77 percent respectively. In all the age groups from 25-29 to 55-59, the participation rates were more then 70 percent. In the age group 60 and above, no declining trend in labour force participation rate was visible in the case of rural areas, though there was an increase of 2.5 percentage points in 1993-94, which remained at 45 percent in 2004-05. 4.26 The overall trends in rural labour force participation rates were almost common to both males and females; except that the average and peak participation 48

rates of males were much higher than those of females. The peak participation rate for rural males was about 99 percent in the age group 35-39. Over the years, there were substantial LFPR declines up to the age group 20-24 in the case of rural females also. The late peaking of female LFPR is understandably related to their reproductive functions during 15-35 years. The peak level of participation rate was, however, about 63.8 percent in the age group 35-39 and the average LFPR was about 60 percent of that of males. In the case of those aged 60 and above, there was an increasing trend in LFPR among females. 4.27 In the case of urban population, the overall labour force participation rates were much lower than those of the rural population in all the age groups. Over the years the declining trend in participation rates among the young was shared by the urban population as well, up to the age group of 15-19. In the age group 20-24, though the participation rate declined from 54.4 percent in 1983 to 50.9 percent in 1993-94, it again improved to 53.1 percent in 2004-05. The peak level of participation rate which was 68.8 percent in 1993-94 in the age group 40-44 also changed to 67.5 percent in the age group 35-39 by 2004-05. The declining trend in the labour force participation rates of those in the age group 60 and above was also sharp in the case of urban population. 4.28 The overall labour force participation rate of urban males was almost comparable to that of rural males. The LFPR was over 90 percent in the age groups 25-29 to 50-54. There was, however, consistent and significant decline in the participation rates of those in the age group 60 and above. In the case of urban females, the labour force participation rate was just about 50 percent of that of rural females and about 30 percent of urban males. The desirable decline of LFPR of children was shared by urban females also. However, in the age groups 15-19, though the LFPR declined in 1993-94, it marginally increased during 2004-05. The peak level of participation rate was about 34 percent in the age group 35-39 in the year 2004-05. There was in fact a

gradual increase in the LFPR of those in the age groups 20-24 to 35-39. In the case of those in the age groups 55-59 and 60 and above, there was a declining trend in the LFPR of urban females. Thus, the women in urban areas have been improving their share in the labour force over the years. 4.29 The lower LFPR in urban areas compared to rural areas is perhaps a manifestation of the higher proportion of youth attending educational and training courses in the former. This may inter alia indicate a less desperate urban situation to be in the labour force at an early age. Such a reading is reinforced by another indicator whereby the aged (60 years and above) shows a much higher LFPR in rural areas than in urban areas.

Low Educated: A Huge Underbelly 4.30 Educational levels are an important aspect indicating not only the quality of labour force in a country but also the potential for improving labour productivity. If people miss opportunities to acquire some level of education in childhood, the chances are that they end up in the labour force as low paid unskilled workers or remain unemployed. India’s record in overcoming illiteracy, if anything, is quite disappointing, despite the recent positive signs. The proportion of illiterate labour force declined from 57.1 percent in 1983 to 37.9 percent in 2004-05, a reduction of about 19.2 percentage points. The share of those with education up to primary level (one-fourth of the labour force) remained almost static over a period of about 22 years from 1983 to 2004-05. There were, however, positive changes of varying magnitudes in the share of labour force with education up to middle level and above. While the share of those with middle level of education increased from 9.3 percent in 1983 to 15.5 percent in 2004-05, the same in the case of those with education up to secondary and higher secondary levels improved from 7.0 percent to 15.4 percent. In the case of graduates and above, the percentage share grew from 2.6 percent in 1983 to 6.6 percent in 2004-05 (Table 4.8 and Figs. 4.2 & 4.3).

4.31 While acknowledging this as a positive development, the Commission would like to emphasize that the pace of progress is too slow compared to other Asian countries, especially those in East and South East Asia. The next challenge seems to be to impart effective literacy i. e. functional literacy and skills that would transform this segment from ‘least educated’ (illiterate plus educated below primary level) to those with some minimum level of literacy, numeracy and skill endowments. Viewed in this perspective, the burden of ‘least educated’ in the labour force is still high (around 63 percent), although it showed significant improvement over the earlier record of 81 percent. Women workers have a high

incidence of ‘least educated’ with as high as 79 percent in 2004-05 while it is still a disappointing 54 percent even for men. The problem is more serious in rural areas than in urban areas. 4.32 The persistence of what we call a huge underbelly of the least educated in the Indian labour force over a thin layer of the highly educated class indeed poses a serious challenge to the problem of creating quality employment. A 'business as usual' approach would hardly be sufficient to meet the challenge of inclusion in any meaningful sense. A serious and focused initiative to impart a measure of literacy, numeracy and skills is therefore called for on an urgent basis. 51

The Challenge of Employment in India

State-level Scenario in LFPR

total labour force participation for the country. Maharashtra with second largest population retained the same position in labour force also with a better LFPR. Bihar had the dubious distinction of having the lowest LFPR and as a result its position in the total labour force turned out to be the seventh despite having the third largest population. The other major state with a large population and low LFPR is West Bengal, though it retained its fourth position both in population and labour force. Andhra Pradesh was an exception with the second highest LFPR and the fifth largest population. As a result, it got elevated to the third position in labour force. Madhya Pradesh with the sixth largest population had a low LFPR though

4.33 Given the significant variations in LFPR across the states in India and the need for policy responses suited to particular states or group of states, we discuss a few salient features of the state-level scenario. The state-wise distribution of population and labour force in 2004-05 along with the LFPR in the decreasing order of population is given in Table 4.9. 4.34 Uttar Pradesh with the largest population and total labour force had the second lowest LFPR. With its large population base, any rise in its LFPR from the present low level can have significant impact on

it retained the sixth position in labour force. Tamil Nadu improved its seventh position in population size to fifth position in labour force with the fourth highest LFPR. Rajasthan could not retain its eighth position in population in the case of labour force due to low LFPR. Karnataka improved its position in labour force with third highest LFPR. The other states retained their relative positions both in population size and labour force except Haryana and Chhattisgarh which interchanged their positions. Himachal Pradesh, however, had the highest LFPR and Chhattisgarh had the fifth highest LFPR. The variation between the highest and lowest LFPR was as high as 21.8 percentage points in the aggregate.

4.35 The composition of labour force in different states by sector and sex in 2004-05 is given in Appendix 4.3 and the percentage distribution is given in Table 4.10. Rural males constituted about 47.6 percent of the total labour force at the all India level. However, their shares varied between 71.4 percent in Bihar and 32.6 percent in Tamil Nadu. The states in which the share of rural males was 50 percent or more were Bihar (71.4%), Assam (64.3%), Uttar Pradesh (55.8%), Orissa (55.4%), West Bengal (54.5%), Jammu & Kashmir (53.3%) and Jharkhand (52.6%). The share of rural males in the labour force was ver y low in Tamil Nadu (32.6%) and Maharashtra (35.0%).

4.36 The share of rural females at the all India level was 26.8 percent. However, it was as high as 43.2 percent in Himachal Pradesh and as low as 16.2 percent in West Bengal. The other states which had significantly high percentage of rural females in labour force were Chhattisgarh (37.1%), Orissa (31.6%) and Karnataka (30.0%). The other major state in which the share of rural females in labour force was significantly low was Bihar with a share of 18.9 percent.

4.41 In the case of Scheduled Tribes (STs), Karnataka had the highest LFPR of 55.1 percent followed by Gujarat (54.8%), Orissa (54.8%), and Kerala (54.1%). Punjab had the lowest LFPR of 36.5 percent and Jammu and Kashmir had the second lowest rate of 36.8 percent. Over the years, Assam’s STs improved the LFPR from 33.3 percent in 1983 to 42.7 percent in 2004-05 and Haryana from 28.8 percent in 1983 to 50.0 percent in 2004-05. The other states which improved the LFPR of scheduled tribes were Gujarat, Jammu & Kashmir, Karnataka, Kerala, Orissa and Uttar Pradesh.

4.37 The share of rural areas in total labour force was as high as 91 percent in the case of Himachal Pradesh and 90.3 percent in the case of Bihar as against an all India average of 74.4 percent. The other major states with high percentage of rural labour force were Assam (87.4%), Orissa (87.0%), Chhattisgarh (83.6%), Jharkhand (81.5%), Rajasthan (80.5%) and Uttar Pradesh (80.2%). The percentage share of labour force in rural areas was comparatively low in Tamil Nadu (57.5%), Maharashtra (62.7%), Punjab (67.9%) and Gujarat (68.0%).

4.42 The average LFPR of Scheduled Caste (SCs) persons varied between 53.1 percent in Andhra Pradesh and 36.4 percent in Bihar. The other states with significantly high participation rates in 2004-05 were Karnataka (52.0%), Kerala (51.9%), Himachal Pradesh (51.2%), Tamil Nadu (50.9%) and Gujarat (49.6%). The states with low participation rates were Assam (38.8%) and Uttar Pradesh (39.9%). Between 1983 and 2004-05, the LFPR of scheduled castes improved in nine states and declined in eight states.

4.38 Urban Females constituted only 5.5% of the total labour force in the country though it was as high as 12.1 percent in Tamil Nadu, 8.6 percent in Kerala, 8.4 percent in Maharashtra and 6.5 percent in Karnataka. Its share was the lowest in Bihar (1.0%).

4.43 Over the period from 1983 to 2004-05, Muslim males improved their LFPR in the states of Assam, Gujarat, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab and West Bengal while Muslim females improved the LFPR in Andhra Pradesh, Assam, Gujarat, Himachal Pradesh, Madhya Pradesh, Orissa, Punjab, Uttar Pradesh, and West Bengal. Considering the entire Muslim population, the highest LFPR was 56.4 percent in Himachal Pradesh, though the second highest was much below at 48.1 percent in Punjab.

4.39 The share of males in the total labour force was the highest in Bihar with a share of about 80.1 percent as against the national average of 67.7 percent. The other states with significantly high proportion of males in the total labour force were West Bengal (78.2%), Assam (75.0%), Jammu & Kashmir (72.5%), Uttar Pradesh (72.4%), Punjab (70.7%) and Haryana (70.1%). The states with high proportion of females in the labour force are Himachal Pradesh (45.4%), Chhattisgarh (40.9%), Andhra Pradesh (40.2%), Uttarakhand (39.0%), and Rajasthan (38.7%).

State-wise Labour Force by Education

State-wise Labour Force Participation Rates by Social Groups

4.44 There is no doubt that the problem of illiteracy among the labour force is fairly generalized for the country as a whole except in Kerala. But, as we stated earlier, the problem needs to be viewed as one of low education indicating a level of education that is adequate for absorption of information, acquisition of some level of formal training and maintaining one’s own accounts with respect to wages and other transactions. Accordingly,

4.40 There are significant variations across the states in the LFPR of different social groups and segments. The labour force participation rates by sector, sex and social groups are given in Appendix 4.4. The classification of states by level and change in LFPR of different social groups is given in Appendix 4.5. The salient features may 54

education up to primary level has been defined to constitute the category of the least educated. The state-wise percentage distribution of labour force by level of education is presented in Table 4.11. The problem is a much deeper one. The absolute numbers are given in Appendix 4.3 4.45 The lowest share of the least educated is in Kerala with around 33 percent followed by Maharashtra with close to 50 percent. There are four states viz., Rajasthan, Chhattisgarh, Madhya Pradesh and Andhra Pradesh where the share of the least educated is as high as 72 75 percent. All other states fall between these two groups of states.

4.46 Uttar Pradesh and West Bengal had the highest and second highest number of persons in the labour force with level of education primary or below. However, in percentage terms, Assam was on the top followed by West Bengal. 4.47 Kerala has the highest share of those with middle level of education (32.0%) followed by Maharashtra (22.1%) and Assam (21.3%). Kerala is also on the top in terms of percentage of those with secondary or higher secondary levels of education in the labour force, followed by Punjab (26.7%) and Himachal Pradesh (25.4%). The highest percentage of graduates and above is in Uttarakhand (8.3%), followed by Maharashtra

(8.2%) and Kerala (8.2%) closely chased by Tamil Nadu (8.1%). The state-wise percentage distribution of labour force by population segments at each level of education is given in Appendix 4.6.

Bihar (51.3%), and Uttar Pradesh (50.2%). The lowest share of illiterates in labour force was 7.3 percent in Kerala followed by Assam (22.0 percent). 4.51 Between 1983 and 2004-05, the highest reduction in the percentage of illiterates among rural labour force was 30.1 percentage points in Himachal Pradesh. The other states with significant reduction in the percentage of illiterates were Jammu & Kashmir (27.5 points), Maharashtra (23.7 points) and Punjab (23.0 points). The lowest reduction was 10.7 points in Kerala as the share of illiterates in its labour force was already very low at 18.0 percent in 1983. The other state with a low reduction in the proportion of illiterates was Karnataka with a decline of 16.1 percentage points.

4.48 The Commission would like to underline the fact that in terms of the educational profile, Indian labour force presents a rather dismal picture. If acquisition of at least a middle level education (8 years) is taken as a dividing line, then close to two thirds of the labour force is inadequately educated. If a more strict dividing line say, secondary level (10 years) and above is taken, then 78 percent or more than three-quarters of the labour force is inadequately educated to cope with the challenges of a technologically fast growing global economy where acquisition of basic educational skills is a sin qua non for a knowledge-based economy. The Commission would like to draw attention here to what may seem to be a coincidence in that the division between 78 percent and 22 percent of the labour force with low and high education is quite close to our earlier estimate of 76 percent of the population belonging to the poor and vulnerable category while the rest 24 percent belonging to the middle and high income categories. As a separate and detailed study (Sengupta et.al 2008) pointed out, there is close association between educational attainments and the poverty status of the Indian population. Accordingly, what we have found here may not be a coincidence after all. It is for the planners and experts to probe further into the prima facie association between education and poverty status.

4.52 The share of illiterates among the total urban labour force was 17.4 percent. It was, however, as low as 4.6 percent in Kerala, 10.1 percent in Assam and 12.3 percent in Gujarat and Maharashtra. The highest percentage of illiterates among urban labour force was 29.9 percent in Rajasthan followed by 28.5 percent in Andhra Pradesh and 26.9 percent in Uttar Pradesh. 4.53 Between 1983 and 2004-05, the percentage of illiterates decreased by 11.7 percentage points at the national level in the urban areas. Among the states, the maximum decline in terms of percentage points was 19.4 in Bihar, followed by 17.0 in Rajasthan and 16.6 in Jammu & Kashmir. Himachal Pradesh registered a positive growth of 4.6 percentage points, a phenomenon perhaps due to migrants.

State-wise Rural/Urban Difference in 4.54 The illiterates and those educated up to primary Labour Force level constitute a major share of the labour force and belong to the category of severely deprived in terms of education. The distribution of such persons in the labour force across the states provides a clear indication of the level of social and economic development in each state. The group is designated as the “least educated” for the purpose of discussion here. About 70.5% of the rural labour force belonged to the least educated group in 200405 as against 87.0% in 1983. Among the states, it varied between 35.2% in Kerala and 81.2% in Madhya Pradesh. The states of Rajasthan and Andhra Pradesh had 80.4% and 79.1% least educated rural labour force.

4.49 In Appendix 4.7 we have provided the detailed calculations pertaining to the rural and urban differences by gender and other dimensions. The salient features are highlighted here to draw the attention to the differences between rural and urban areas. 4.50 In the entire rural labour force, the highest proportion of illiterates was 59.4 percent in Rajasthan during 2004-05. The second highest was in Andhra Pradesh with 58.4 percent illiterates. The other states with significantly high proportion of illiterates among the rural labour force were Madhya Pradesh (52.9%), 56

part of the work force need not necessarily indicate a strong demand for work but rather represents the necessity to eke out a living, however precarious, by creating one’s own employment. A sizeable percentage of the selfemployed with or without the help of unpaid family members (called Own Account Workers) are those who are forced by circumstances to eke out such a living.

4.55 The reduction in the proportion of the least educated in rural labour force between 1983 and 200405 was 16.4% at the national level. Among the states, the declines were 31.0, 26.9, 25.0 and 22.8 percentage points in Kerala, Maharashtra, Himachal Pradesh and Jammu & Kashmir respectively. On the other side, West Bengal recorded the lowest decline of about 9.0 percentage points, followed by Rajasthan and Andhra Pradesh (12.8 and 13.8 percentage points respectively).

4.60 In line with the growth in the labour force, the total workforce of the country increased consistently from 301.4 million in 1983 to 372.4 million in 1993-94 and then to 455.7 million in 2004-05. The size and growth rate of the workforce by sector and sex is given in Table 4.12. The pattern of growth in the workforce is very similar to that of the labour force, discussed earlier.

4.56 Among the urban labour force 39.6 percent was in the group of least educated in the year 2004-05. Among the states, it varied between 52.9% in Rajasthan and 26% in Kerala. The states, other than Rajasthan which had high share of least educated were Andhra Pradesh (50.2%), Uttar Pradesh (49.9%), and Madhya Pradesh (44.7%). The states which had comparatively low percentages of least educated, other than Kerala, were Assam (29.0%), Maharashtra (31.2%) and Gujarat (33.1%).

4.61 The growth of work force has slowed down in recent years. The average annual growth rate of workforce decreased from 2.03 percent during the first period (1983 to 1993-94) to 1.85 percent during the second period (1993-94 to 2004-05). The slow-down was sharper for males and rural areas.

4.57 The overall reduction in the proportion of the least educated among urban labour force between 1983 and 2004-05 was 17.6 percentage points. The largest reduction was 25.2 in Gujarat, 24.8 in Kerala, and 23.7 in Bihar. The reduction was the lowest at 11.8 in Uttar Pradesh, 12.6 in West Bengal and 12.7 in Assam. In the case of Himachal Pradesh, the percentage of the least educated increased by 7.4 points probably due to the increased in-migration of unskilled workers.

4.62 The UPSS work force included both the principal and subsidiary status workers. As shown in Table 4.13, the subsidiary status workers constituted 9.4 percent of the total work force in 2004-05. Rural areas (10.9 percent) and females (25.0 percent) had a larger concentration of subsidiary workers. Females account for 86 percent of the total subsidiary workers in the country. During 1983 and 2004-05, the decline in the proportion of subsidiary workers was rather small.

4.58 In the preceding sections, we have examined the size, growth and characteristics of the labour force for a fairly long period of more than two decades. The sections that follow are intended to examine the size, growth and characteristics of workforce, especially with regard to the composition of the sectors and industries in which the workers are engaged, including the social groups and gender dimensions.

4.63 The percentage distribution of workers in each of the population segments by activity status during the years 1983, 1993-94 and 2004-05 is given in Table 4.14. 4.64 For the country as a whole, a great majority of the workers were either self-employed (56.6 percent) or casual workers (28.1 percent). Only 15.3 percent of the workers were regular salaried/wage workers. The proportion of own account workers and employers has declined from 36.6 percent in 1983 to 32.8 percent in 2004-05. On the other hand, the share of unpaid family workers has increased from 20.7 percent to 23.7 percent during this period. Thus, there has been a slight reduction in the share of self-employed during this period.

Trends in Size & Composition of Work Force 4.59 While the labour force, defined in terms of the employed and the unemployed, constitutes the supply of labour in a country, those actually engaged in work, called the work force, may be deemed as the labour demand. We say ‘may be’ because in the Indian context a good 57

The Challenge of Employment in India

Table 4.12: Size and Growth Rate of Work Force by Sector and Sex Population Segment

4.65 In spite of a small increase in regular salaried/ wage workers and a small decrease in casual workers between 1983 and 2004-05, the rural female workers continued to be the most disadvantaged in terms of the work force characteristics. As compared to the male workers in both rural and urban areas, and female workers in urban areas, share of the unpaid family workers among the rural female workers is not only the highest, it has also increased by 10 percentage points, from 38.0 percent

in 1983 to 48.0 percent in 2004-05. Similarly, as compared to other categories of workers, the proportion of own account workers and employers among rural female workers is not only the lowest, but it has also declined further by 8 percentage points, from 23.9 percent to 15.9 percent during this period. 4.66 The rural male workers have not done well on the employment front also. Between 1983 and 2004-05, 59

The Challenge of Employment in India

Industry-wise Distribution of Workers by Social Groups

the percentage share of own account workers and employers among the rural male workers have reduced from 45.9 percent to 41.9 percent. In addition, the proportion of regular salaried workers has declined from 9.8 percent to 8.9 percent, while the proportion of casual workers has increased from 29.7 percent to 32.6 percent during this period.

4.70 The percentage distribution of workers in each industry by social groups during 2004-05 is given in Table 4.17. In the aggregate, Scheduled Tribe (ST) and Scheduled Caste (SC) workers constituted 9.8 percent and 19.9 percent of work force respectively while Muslims and Other Backward Communities (OBCs) constituted 10.4 percent and 37.4 percent respectively. The rest 22.6 percent belonged to other communities.

4.67 In terms of time trends, the urban female workers were better-off. There has been substantial decline in the proportion of casual workers among urban female workers, from 28.3 percent to 16.8 percent between 1983 and 2004-05, a 11 percentage points decline. On the other hand, their share of regular salaried/wage workers has significantly increased by 10 percentage points, from 26.3 percent to 36.0 percent during this period.

4.71 Agriculture provides employment to 56.6 percent of the total workforce. Workers from ST, SC and OBC Communities have a significantly higher concentration in agriculture as compared to Muslims and ‘Others’. For instance, as high as 8 out of 10 ST workers and 6 out of 10 SC and OBC workers were engaged in agriculture as compared to 46 percent and 39 percent among ‘Others” and Muslims respectively. A similar pattern is found in the case of mining sector as well.

Gender Differentials in Education by Industry Groups 4.68 The comparative percentages of male and female workers with different educational levels by industry in 1983 and 2004-05 are given in Tables 4.15 and 4.16.

4.72 After agriculture, ‘manufacturing’, ‘trade’, ‘construction’ and ‘transport, storage and communication’ are the sectors that provide employment to a significant number of workers. Of the total workers, 12.2 percent were in manufacturing, 9.5 percent in trade, 5.7 percent in construction, and 4.0 percent in transport, storage and communication. As compared to other social groups, the concentration of Muslim workers in all of these sectors was the highest: manufacturing (21.5 percent), trade (17.2 percent), construction (6.6 percent), and transport storage and communication (6.2 percent). In addition to Muslims, SC and ST communities also have a larger share in construction sector (8.9 and 5.9 percent respectively). Another industry group where the ST, OBC and Muslim workers have relatively large presence as workers is ‘other community, social and personal services’.

4.69 Proportion of the least educated among female workforce was 80.6 percent in 2004-05 as compared to 55.5 percent in the case of males. Industry-wise, 96.7 percent of the female workforce in mining industry belonged to the category of ‘least educated’ as against 62.4 percent in the case of males. Other industries with significantly large proportion of the least educated female workers included (i) construction (91.7%), (ii) agriculture (87.5%), and (iii) private households & ETOs (85.7%). In all these industry groups, the percentages of the least educated females were significantly larger than such persons among the males. However, like in the case of the least educated females, the proportion of the least educated males in all these industries were higher than the overall average for all male workers. Workers in rural areas in general and women workers in particular have low autonomy and face additional constraints due to low human capabilities, especially because of the low levels of education, that mars their ability to acquire and maintain good quality jobs outside agriculture.

4.73 It is evident from the above analysis that certain social groups are significantly attached to specific industries. Scheduled Tribes and Scheduled Castes are generally employed in land- based industries like agriculture, mining and construction. Muslims were associated with trade apart from manufacturing and transport, storage and communication services. OBCs on

Table 4.15: Percentages of Male & Female Workers with Different Educational Levels by Industry Groups in 1983 Industry Group

Illiterate

Least Educated

Middle

Secondary & HS

Graduates & above

Male

Female

Male

Female

Male

Female

Male

Female

Male

Female

Agriculture

57.6

85.7

85.8

97.0

9.4

2.3

4.2

0.7

0.6

0.1

Mining

51.9

94.0

77.0

99.0

11.1

0.5

9.2

0.5

2.7

0.0

Manufacturing

30.2

65.1

69.0

90.6

15.8

6.2

11.8

2.7

3.5

0.4

Electricity, gas, water

13.3

34.6

43.2

45.2

21.4

0.0

24.2

20.1

11.3

34.7

Construction

46.9

90.1

80.0

97.9

11.3

1.1

6.6

0.6

2.1

0.4

Trade

23.1

74.4

59.0

92.0

20.4

4.8

16.2

2.7

4.4

0.5

Hotels & Restaurants

27.5

63.1

71.3

91.7

19.3

5.6

7.8

1.8

1.6

0.9

Transport, Storage & Communication

30.8

49.4

62.3

64.7

17.7

5.9

15.8

18.1

4.1

11.2

Banking & Finance

1.8

10.2

10.0

19.3

11.8

5.2

29.4

14.9

48.8

60.7

Real Estate& Business services

5.0

0.0

22.0

8.8

15.7

14.0

23.9

31.8

38.3

45.5

Public Admn & Defence

9.0

29.2

27.7

39.8

18.6

8.4

36.1

31.6

17.6

20.2

Education

4.1

7.0

11.1

13.9

10.8

13.1

42.0

42.0

36.1

31.0

Health and Social work

6.2

19.2

22.9

37.0

19.5

13.3

35.9

38.0

21.7

11.7

Other community, Social & Personal Services

42.8

86.7

78.0

95.8

12.6

1.4

7.2

1.7

2.1

1.0

Private households & ETOs

57.5

78.5

89.5

97.9

7.7

1.9

1.8

0.2

1.0

0.0

Total

46.0

81.6

75.7

94.4

12.1

2.9

8.9

1.9

3.2

0.8

Source: ibid.

94 & 1993-94 to 2004-05) is given in Table 4.18. While, no industry recorded negative growth in employment during the period from 1983 to 1993-94, two sectors viz. (i) public administration & defence and (ii) electricity, gas & water registered negative growth rates in employment during 1993-94 to 2004-05. The policy of downsizing of the Government coupled with increased privatization of electricity, gas & water seemed to have resulted in employment losses in these sectors.

the other hand are employed in all the industries with the least variation in their shares across different industry groups from the overall average. Those belonging to ‘Other’ communities maintain higher participation in the lucrative service industries like banking & finance and real estate & business services. Thus, social status of workers has a definite influence on the choice of employment.

Classification of Industries by Growth in Employment

4.75 Employment in agriculture and ‘other community, social & personal services’ continued to grow at a rate lower than 2 percent in both the periods. However,

4.74 The classification of industry groups by growth rates of employment in both the periods (1983 to 199361

The Challenge of Employment in India

Table 4.16: Percentages of Male & Female Workers with Different Educational Levels by Industry Groups in 2004-05 Industry Group

Illiterate Male

Least Educated

Female

Male

Female

Middle Male

Female

Secondary & HS

Graduates & above

Male

Male

Female

Female

Agriculture

38.7

69.1

68.4

87.5

16.8

8.2

12.4

4.1

2.4

0.3

Mining

35.1

89.7

62.4

96.7

14.9

0.3

16.5

2.4

6.3

0.5

Manufacturing

18.3

43.2

48.7

71.6

21.7

16.1

21.9

10.5

7.7

1.8

Electricity, gas, water

5.5

19.2

21.3

26.1

18.6

15.3

40.9

38.8

19.3

19.9

Construction

32.8

74.1

65.7

91.7

20.6

5.5

11.5

1.5

2.3

1.3

Trade

13.9

44.4

38.5

68.9

21.5

13.5

29.8

13.8

10.3

3.9

Hotels & Restaurants

20.2

47.0

54.8

75.2

22.8

14.1

19.1

7.7

3.3

3.0

Transport, Storage & Communication

20.1

16.8

44.7

31.8

23.1

14.7

25.2

30.2

7.1

23.3

Banking & Finance

0.2

4.1

4.3

7.4

10.5

5.6

31.0

16.3

54.2

70.7

Real Estate & Business services

3.0

9.4

14.9

13.6

12.3

4.6

29.2

23.9

43.7

57.9

Public Admn & Defence

4.8

18.0

16.7

30.6

13.7

10.0

40.0

32.1

29.6

27.2

Education

1.2

4.4

5.6

9.4

4.3

6.2

33.3

36.9

56.9

47.5

Health and Social work

2.8

14.0

10.9

25.6

12.2

8.8

39.4

43.2

37.5

22.4

Personal Services

23.6

61.7

54.6

76.4

21.1

8.3

18.5

11.1

5.8

4.1

Private households & ETOs

28.5

57.1

65.4

85.7

20.9

10.0

10.9

3.8

2.8

0.6

Total

28.0

61.3

55.5

80.7

18.4

9.2

18.5

7.0

7.6

3.1

Other community, Social &

Source: ibid.

employment in ‘private households’ which had the lowest rate of growth of 0.8 percent in the first period achieved a growth rate of 6.4 percent in the second period.

the first period viz. (i) hotels & restaurants, (ii) transport, storage & communication and (iii) education increased the same to more than four percent during the second period. Banking & finance sector which achieved 6.4 percent growth rate in employment during 1983 to 199394 could not sustain the same during the period 1993-94 to 2004-05 and ended-up with a significantly lower growth rate of 3.1 percent. The two sectors which achieved significant growth rates in employment in both the periods were (i) construction and (ii) real estate & business services. Construction sector which achieved a growth rate of 5.7 percent during first period improved it to 7.2 percent in the second period. Real estate &

4.76 The industry groups (i) mining and (ii) health & social work which had employment growth rates higher than 2 percent but less than 4 percent during the first period could achieve only growth rates of less than 2 percent during the second period. Manufacturing sector retained a growth rate between 2 and 4 percent during both the periods though it was lower during the second period than in the first period. The industry groups with employment growth rates between 2 and 4 percent during 62

Table 4.17: Percentage Distribution of Workers by Industry & Social Group in 2004-05 Industry Group

ST

SC

OBC

Muslim

Others

Total

Agriculture

78.56

59.61

60.68

38.60

45.76

56.56

Mining

0.94

0.75

0.54

0.31

0.48

0.58

Manufacturing

4.68

10.68

12.24

21.45

12.31

12.16

Electricity, gas, water

0.19

0.29

0.21

0.28

0.45

0.29

Construction

5.76

8.86

5.17

6.60

3.32

5.69

Trade

2.98

5.89

8.15

17.18

14.20

9.50

Hotels &Restaurants

0.48

0.80

1.45

1.31

2.00

1.34

Transport, Storage & Communication

1.88

4.07

3.47

6.23

4.86

4.04

Banking & Finance

0.10

0.34

0.52

0.29

1.66

0.68

Real Estate& Business services

0.15

0.65

0.71

0.89

2.29

1.02

Public Admn & Defence

1.37

2.28

1.41

1.27

3.21

1.97

Education

1.40

1.45

1.93

1.88

5.13

2.50

Health and Social work

0.32

0.71

0.67

0.66

1.40

0.81

Other community, Social & Personal Services

0.46

2.13

2.08

1.95

1.71

1.83

Private households & ETOs

0.74

1.48

0.77

1.10

1.22

1.04

100.00

100.00

100.00

100.00

100.00

100.00

Total Source: ibid.

business services registered the highest growth rates of 7.6 percent and 10.4 percent in the first and second periods respectively. The average rate of growth of employment during 1983 to 2004-05 was 9.0 percent in real estate & business services and 6.4 percent in the case of construction, against the overall growth rate of 1.9 percent in the total work force.

the segments of population. In the aggregate 38 percent of the labour force remained illiterate in 2004-05. By segments, 33.7 percent of rural males, 65.1 percent of rural females, 12.8 percent of urban males and 34.3 percent of urban females were illiterate. Thus almost twothird of the rural females who constituted 27.0 percent of the total labour force in the country remained illiterate in 2004-05. Among them, the percentage of illiterates was the lowest at 38.8 percent in the age group 15-19 followed by those in the age group 20-24 at 45.4 percent, 10-14 at 48.3 percent, and 25-29 at 54.8 percent. In the case of all other age groups, the illiterates were more than 65 percent. Even among rural males and urban females, the percentages of illiterates were significantly high.

Policy Implications 4.77 It was undoubtedly a positive change that the proportion of illiterates among the labour force in all segments of population was decreasing consistently over the years as a consequence of policies and programs by the government for achieving universal primary education. The achievements were, however, not uniform across all 63

The Challenge of Employment in India

Table 4.18: Classification of Industries by Rates of Growth of Employment during 1983 to 1993-94 & 1993-94 to 2004-05 Rate of growth during 1983 to 1993-94

4.78 There are significant variations in both the level and change across the states in the LFPR of different social groups and segments. First, Bihar has the dubious distinction in terms of participation rates among the SCs, STs and Muslims. For these social groups, Bihar has not only lower participation rates below the national average, the LFPR has indeed declined between 1983 and 200405 also. This is true not only in rural and urban areas, but also for males and females. Uttar Pradesh follows very closely the trends in Bihar excluding the case of rural STs. It is also interesting to note that even prosperous states like Tamil Nadu and West Bengal show poor performance in the case of Muslims and STs in both the rural and urban areas. In terms of better performance (i.e. high participation rate and continuous improvement between 1983 and 2004-05) Karnataka stands out for SCs, STs and Muslims in both the rural and urban areas. Gujarat follows next in improving the participation rates of SCs and Muslims, and Orissa for SCs and STs in both the rural and urban areas.

(68.7%), Jharkhand (68.3%), Uttar Pradesh (66.4%) and West Bengal (64.8%). Between 1983 and 2004-05, Orissa exhibited exceptional performance among these states, in terms of reduction in percentage share of the least educated in the labour force. Andhra Pradesh and West Bengal exhibited a decline in percentage shares lower than the national average in both the rural and urban areas. In rural areas, the performance was poor in Bihar, Madhya Pradesh and Rajasthan as well. In contrast, some states that have done very well in terms of the lower than national average of the least educated and higher than the national average in the reduction of least educated in the labour force during 1983 and 2004-05 are Gujarat, Kerala, Maharashtra and Punjab, in both rural and urban areas. 4.80 It is indisputable that educational deprivation is a significant cause of low productivity, poverty and falling victim to exploitation. It is, therefore, important that the issue of illiteracy of labour force is tackled through appropriate schemes and programmes which are sensitive to the needs of women.

4.79 The percentage share of the least educated (illiterates and those up to primary level) in the labour force was more than the national average in Rajasthan (75.0%), Chhattisgarh (74.2%), Madhya Pradesh (73.4%), Andhra Pradesh (72.8%), Orissa (68.9%), Bihar

4.81 As regards work force, rural females constituted more than three-fourth of the subsidiary status workers. Females accounted for almost one third of the unpaid

family workers and a little more than one third of the casual workers. Their share was the least among own account workers, employers and regular salaried/wage workers. Among rural females, there has been a substantial increase in the share of unpaid family workers between 1983 and 2004-05, and decrease in the share of own account workers and employers. On the contrary, among urban females, there has been a substantial increase in the share of regular workers and decrease in the share of casual workers. Thus, while there have been improvements among urban females, rural females have shown deterioration. Among, males too, urban male workers are better off than their rural counterparts, both in terms of levels and change in employment. Due to low literacy and low autonomy, rural females are concentrated in agriculture and engaged in unpaid family labour or as casual workers, restricting their mobility in job ladder. 4.82. Agriculture is the major source of employment followed by ‘manufacturing’, ‘trade’, ‘construction’, and ‘transport, storage and communication’. However, in spite of the positive growth rates, the share of agriculture in employment has been declining over time and change in the composition of work force has been relatively unfavourable with rising shares of unpaid family workers

and casual workers. In the construction sector too the share of regular workers has declined while that of casual workers has increased. The concentration of the least educated in these sectors too, has restricted the ability of the workers to obtain quality jobs. 4.83. The socio-economically deprived groups such as Scheduled Tribes and Scheduled Castes are generally employed in land based industries like agriculture, mining and construction. Muslims have been associated with trade apart from manufacturing and transport, storage and communication services. OBCs on the other hand are employed in all the industries with the least variation in their shares across different industry groups from the overall average. Those belonging to ‘Other’ communities maintain higher participation in the lucrative service industries like banking & finance and real estate & business services. Thus, the social status of workers has, a definite influence on the choice of employment. 8.84. Any credible employment strategy, therefore, needs to pay attention to enhancing educational levels of the workers, social status of workers including women, specific industries that can absorb a higher proportion of males and females and creation of quality jobs.

Appendix 4.5: Classification of States by Level and Change in LFPR of Different Social Groups Table 4.5.1: Classification of States by Level & Change in LFPR of Rural Scheduled Castes Level of LFPR Higher than national average in 2004-05 Lower than national average in 2004-05

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force Demographic Dividend 5.1 Any informed discussion on an employment strategy will have to be based on likely scenarios of the number and characteristics of the people who will be seeking employment. The people seeking work constitute the labour force. They fall largely in the age group of 15-59 years. The size of the working population is determined by the pace of the population growth. The process, known as demographic transition, determines the relative share of the working age group and consequently the labour force. 5.2 In the sixties and seventies, the developing countries fell prey to the neo-Malthusians who emphasized the detrimental impact of rapid population growth that had resulted from the reduction of mortality achieved earlier by the newly independent but poor countries. However, with the emergence of the group of the East and South-East Asian countries registering rapid economic growth, the emphasis quickly shifted to the concept of ‘demographic dividend’ that showed the importance of demographic attributes in enhancing economic growth (see for example, Bloom and Williamson (1998)). 102

5.3 The concept of demographic dividend basically connotes the gains in economic growth as a result of the increase in the share of the working age population relative to their nonworking age counterparts, viz. children and the aged. Such a situation emerges when a country experiencing the demographic transition reaches its second stage of a fast reduction in fertility leading to a decline in the child population. In India the process of demographic transition is now in the early part of the second stage when fertility decline is picking up. However, this national average conceals a great deal of the regional variations. As per the latest National Family Health Survey (IIPS and Macro International 2007), 11 states have already achieved or are very close to achieving the replacement level fertility rate of 2.1 children per couple in the fertility age group. When such a rate is reached, the population will stabilize within a period of one generation i.e. around 25 years. However, population will continue to grow during this intervening period. For the remaining states achieving replacement level of fertility is farther away.

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

5.4 This underlines the need to understand the statewise population growth over time in order to get an idea of the growth rate in the labour force along with its regional variations. Of course, labour force participation rate (i.e. percentage of working age population who are available for work) could be higher or lower depending on a number of factors such as erosion of feudal aversion and brahminical caste taboos to manual work and social restrictions on the freedom of women to participate in the labour market. In India, this rate is crucially dependent on the participation of women, as we shall see later.

Earlier Population Projections 5.5 The Eleventh Plan used a set of projections prepared by its Working Group on Labour Force and Employment Projections. These projections were based on two different concepts, the Usual Principal and Subsidiary Status (UPSS) and the Current Daily Status (CDS). The UPSS labour force is projected to increase from 492.7 million in 2006-07 to 541.8 million in 201112 and the CDS labour force from 438.9 to 483.7 million, translating into annual growth rates of 1.9 percent and 2.0 percent respectively over the Plan period. The increase in the labour force during the Plan comes to 49.2 million (UPSS) and 44.7 million (CDS) (Planning Commission 2008). 5.6 The NCEUS has attempted the projections based on UPSS and Modified Current Weekly Status (MCWS), a variant of CWS. The decision to carry out an independent exercise was prompted by two main reasons. First, the Planning Commission’s projections were only for the country as a whole and not for the individual states. NCEUS recognizes the significant regional variations in the process of demographic transition in India and its consequent impact on the future growth of the labour force. Therefore we decided to project the labour force for the individual states first and then aggregate them for the country as a whole. Second, as noted earlier in this report (see Chapter 3), the CDS measure does not relate to persons although it has the ability to capture the situation during a short reference period. So we have adopted a modified version of the Current Weekly Status (MCWS), to provide us

projections along with that of the UPSS, which we call a broad measure of employment and unemployment. 5.7 Since population projections constitute the basis for projecting the labour force, we highlight here certain important features of the future scenario and the sharp regional variations across the states in India, which have important implications for population policy and its implementation. The three time points for which projections have been made are 2007 that marks the th th beginning of the 11 Plan, 2012 the end of the 11 Plan th and the beginning of the 12 Plan and 2017 when the th 12 Plan ends. Thus, a ten year perspective is taken for the labour force projections here.

Methodology 5.8 The methodology consists of projecting statewise populations, and then applying age-specific LFPR projections by using the observed LFPRs during the years th th 1983, 1993-94 and 2004-05 as available from 38 , 50 st and 61 Rounds Employment-Unemployment Surveys of National Sample Survey Organisation (NSSO). 5.9 The projection of population by age and sex for the period 2001-2026 has been worked out by an Expert Committee constituted by the National Population Commission. The Committee has also made projections of the rural urban totals. However, in order to make statewise labour force projections by applying projected labour force participation rates, respective projected population for urban and rural areas by age and sex are required. These population projections were carried out by the International Institute for Population Studies (IIPS), Mumbai at the instance of the NCEUS. As many as 20 states and two groups of states were taken up. The latter consists of (i) North East States other than Assam and (ii) other states that include Delhi, Pondicherry, Goa and other union territories. 5.10 The detailed exercise involved arriving at the state-wise projections of population in the urban areas by sex and age, allowing for rural-urban migration and obtaining projections for rural areas by subtracting agesex projections for urban population from the total population projections made by the Expert Committee. The age-sex projections of population for urban areas 103

The Challenge of Employment in India

Table 5.1: Projected Population & Growth Rates in Different Years by Sex

were made by using ‘Cohort Component Method (CCM)’ for major states and ‘Ratio Method’ for smaller states and union territories. The details of this methodology are given in Appendix 5.1 at the end of this Chapter. 5.11 To project the labour force participation rates (LFPRs), an internal exercise was carried out for computing them by age and sex separately for rural and urban areas in the selected states based on the unit level data from the th th st 38 , 50 and 61 Rounds of the NSSO’s Employment and Unemployment Survey mentioned above. The rates were computed by applying both the UPSS and MCWS concepts. These rates were examined for identifying trends in specific age groups or geographic areas. The ratio method was used for projecting the LFPRs wherever decreasing or increasing trends were noted. In other cases, smoothed averages were used for projecting the LFPRs for 2007, 2012 and 2017. The methodology followed is contained in the Appendix 5.1 to this Chapter.

5.14 As already noted, the national picture conceals the regional variations across the states in India. First, the population growth rates show wide variations across the states as a result of the differential pace of the phenomenon of demographic transition (Table 5.2). This suggests that the growth rates in working age population will continue to vary significantly across the states for the next three decades or so. It will also be manifest in differential growth rates of the labour force. Table 5.2 Projected Population Growth Rates in India by State (Percent/Annum)

5.12 The projected population as per the above methodology was 1129.97 million in 2007 which would increase to 1210.32 million by 2012 and further to 1284.89 million by 2017. These projections by sex and the growth rates are given in Table 5.1. The aggregate population growth rate between 2002 and 2007 is projected to be 1.54 percent. This is expected to decline to 1.38 percent during 2007-12 and further to 1.20 percent during 201217. However, the benefits of this decreasing population growth in terms of working age population will be felt only after 15 years from the initial period. 5.13 In the year 2002, the younger age groups had a large percentage share in the male and female populations except that the percentage share of the lowest age group 0-4 was marginally lower than that of the age group 5-9. There will be progressive reduction in the share of this age group in the total population as we can see from the ‘population pyramids’ shown for 2007, 2012 and 2017 (Fig. 5.1- 5.3.). Thus, the age composition of the population will change. While in 2007, the highest population share was in the age group 10-14, it is projected to go to the age group 15-19 by 2012 and then to the age group 20-24 by 2017. In other words, the share of population in the working age group is likely to increase with time.

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Fig. 5.1: Population Pyramid of India for 2007

Source : ibid

Fig. 5.2: Population Pyramid of India for 2012

Source : ibid

105

The Challenge of Employment in India

Fig. 5.3: Population pyramid of India for 2017

Source : ibid

5.15 By segregating the population into three broad groups i.e., 0-14, 15-59 and 60+ years, we find that 15 states out of the 22 have shares of working age population higher than the national average. Tamil Nadu (65.5 percent) and Kerala (64.7 percent) are at the top and Bihar (55.3 percent) and Uttar Pradesh (55.5 percent) are at the bottom in 2007. By 2017, all the states will increase their shares of working age population and the national average will increase to 63.9 percent compared to 60.3 percent in 2007. The top states in 2017 will be those in the North East (other than Assam) with 68.3 percent of population in the working age group followed by West Bengal (67.6 percent) and Andhra Pradesh (66.5 percent). At the bottom will be Uttar Pradesh (59.2 percent) followed by Madhya Pradesh (61.8 percent). The details of the state-wise figures are given in Tables 5.3 - 5.5. We shall later examine whether this demographic advantage will be translated into higher share of labour force or not. 5.16 The differential results in terms of working age population is the outcome of the past population growth rates. In terms of demographic transition, Kerala has

already reached the third stage with low birth and death rates and stands at the top end of the Indian demographic spectrum. At the other end is Uttar Pradesh with the highest share of population in the age group 0-14 in 2017. The projected population structure in Kerala and Uttar Pradesh provide the two ends of the demographic spectrum. The population pyramids of these two states during the years 2007 and 2017 are given in Fig. 5.4- 5.7. 5.17 These two extremes in the Indian spectrum of demographic transition show the uneven regional process contributing to an all India demographic transition. The Kerala population pyramid for 2007 is even more advanced than the all India projected population pyramid for 2017. This entails a regionally differentiated and nuanced population policy that may accelerate the demographic transition in the lagging states enabling them to catch up earlier than projected here. This will of course have an impact on working age population and labour force growth in the future hopefully not too far in terms of a long term developmental perspective.

106

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Fig. 5.5: Population Pyramids of Uttar Pradesh for 2007

Source : ibid

Fig. 5.6: Population Pyramid of Kerala for 2017

Source : ibid 109

The Challenge of Employment in India

Figure 5.7: Population Pyramid of Uttar Pradesh for 2017

Source : ibid

Projected Labour Force 5.18 We now come to the findings on our projections of the labour force. The projected labour force in each of the years 2007, 2012 and 2017 has been decomposed into different educational levels by using the ratio method. The percentage shares of labour force in different age groups by educational levels in 1993-94 and 2004-05 have been used to estimate the average annual changes and the shares for each of the above years were projected by applying the same technique. The shares thus arrived at were applied to arrive at the projected labour force for all the age groups in each segment of every state.

5.20 The projections of total labour force for 2012 and 2017 were 537.6 million and 583.4 million respectively as compared to the corresponding Planning Commission’s projections of 541.9 million and 586.5 million. Our lower projections derive mainly from the difference of 3.5 million children in 2012 and 4.0 million children in 2017 when compared to Planning Commission’s projections. 5.21 The projections of UPSS labour force by sector and sex st as on 1 April of 2007, 2012 and 2017 are given in Table 5.6.

st

5.19 The projected UPSS total labour force as on 1 April 2007 as per the NCEUS exercise is 489.1 million as against the Planning Commission’s projection of 492.6 million. The difference is primarily because of (i) a reduction of about 1.2 million on account of declining labour force participation of children below the age of 14 years (ii) population adjustments carried out at the state level instead of the national level and (iii) use of labour force participation rates of each segment of the population for each state.

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Comparison of Growth Rates

increasing enrolment rates in education. In the case of males, the highest share of labour force would be in the age group 20-24 in the year 2007 and 2012 while it would be in the age group 25-29 in the year 2017. In the case of females, the highest share of labour force would be in the age group 30-34 in all the years. The age pyramids of the labour force in the years 2007, 2012 and 2017 age are given in Fig. 5.8 - 5.10.

5.22 The average annual rates of growth of projected population and UPSS labour force projections of the Planning Commission and the NCEUS are given in Table 5.7. 5.23 In the aggregate, the projected population growth rate between 2007 and 2012 is 1.38 percent per annum. However, the growth rates of the projected labour force are 1.92 percent as per Planning Commission’s projection and 1.91 percent as per NCEUS’ projection. A significant difference between the two sets of projections is that the NCEUS’ figures for the growth rate of female labour force between 2012 and 2017 is marginally higher than that given by Planning Commission while just the reverse holds good for their projection of the male labour force. For the same period NCEUS projection for the aggregate labour force growth rate was slightly higher than that of Planning Commission. The growth rates of population and labour force projections during the period 2012 and 2017 are given in Table 5.8.

State-wise projections of UPSS Labour Force by Sector & Size 5.26 The state-wise projected LFPRs are given in Table 5.10. The state-wise UPSS labour force by sector and sex as on 1st April of 2007, 2012 and 2017 along with the growth rates are given in Annex 5.1 and statewise and age group-wise projections are given in Annex 5.2. In general, the growth rates are higher in the case of the states with the maximum share of labour force. 5.27 As in the case of population, the projected labour force varied considerably across the states. While the projected UPSS labour force in 2007 was as high as 70.58 million in Uttar Pradesh, it was as low as 3.5 million in Himachal Pradesh. There were two states with a labour force of over 50 million and one state between 40 and 50 million. These were Uttar Pradesh, Maharashtra and Andhra Pradesh in that order. There were seven states with total labour force between 20 million and 40 million

5.24 The projected UPSS labour force by sex in 2007, 2012 and 2017 is given in Table 5.9. 5.25 As per the projections, there would be a consistent decline in both the male and female labour force of younger age groups up to 15-19 as a result of Table 5.7: Comparative Growth Rates of Population & UPSS Labour Force between 2007 & 2012 (Percent/Annum)

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Fig. 5.9: Labour Force Pyramid of India for 2012

Source : ibid

Fig. 5.10: Labour Force Pyramid of India for 2017

Source : ibid

113

The Challenge of Employment in India

Table 5.10: Projected LFPRs in India by State State

2007 Males

2012

2017

Females

Person

Males

Females

Person

Males

Females

Person

Himachal Pradesh 59.34

48.82

54.19

61.50

51.11

56.43

63.22

52.36

57.93

Andhra Pradesh

61.54

41.37

51.53

62.99

42.26

52.68

64.07

42.64

53.40

Other NE

56.39

32.21

44.65

61.20

36.36

49.12

64.72

40.20

52.78

Karnataka

61.20

36.34

48.96

63.15

36.95

50.24

64.16

37.87

51.19

Orissa

60.66

32.82

46.91

62.53

34.95

48.89

63.95

36.42

50.31

Chhattisgarh

56.73

39.27

48.04

58.76

39.32

49.08

60.66

39.52

50.13

Gujarat

59.98

32.27

46.78

61.95

33.01

48.23

63.41

33.98

49.52

Uttarakhand

55.85

36.33

46.28

58.05

37.41

47.94

59.78

38.15

49.20

Madhya Pradesh

58.80

34.51

47.17

60.18

34.81

48.07

61.33

35.04

48.80

Tamil Nadu

61.71

35.68

48.76

62.31

35.36

48.88

62.50

34.40

48.48

Rajasthan

52.76

35.41

44.46

54.92

36.08

45.91

57.50

37.22

47.81

Haryana

56.36

27.30

42.98

58.48

29.62

45.23

60.22

31.94

47.27

Punjab

59.67

27.33

44.66

61.29

28.07

45.95

62.58

28.42

46.88

Kerala

61.08

31.31

45.80

61.67

30.62

45.78

62.21

30.49

46.00

J&K

58.04

27.89

43.74

59.84

27.21

44.29

62.35

27.45

45.64

Maharashtra

54.58

31.53

43.55

56.44

31.44

44.49

58.28

31.66

45.56

Jharkhand

53.67

26.44

40.46

56.76

27.15

42.39

59.61

28.60

44.54

Assam

56.65

19.84

38.78

60.07

22.22

41.65

62.62

24.22

43.88

West Bengal

60.81

17.72

39.93

63.43

17.86

41.29

65.26

17.60

42.04

Uttar Pradesh

52.49

21.29

37.73

53.94

22.26

38.96

55.17

22.91

39.90

Other states

55.79

12.54

36.30

55.57

12.09

36.11

55.94

11.86

36.47

Bihar

51.42

15.30

34.06

54.19

14.46

35.04

57.23

13.82

36.23

All India

56.97

28.61

43.29

58.75

29.05

44.43

60.28

29.44

45.41

Source : ibid

and another 12 states/groups of states with labour force less than 20 million in 2007. The growth rates in labour force over the years also varied significantly across the states. While some of the states recorded growth rates of over 2 percent per annum some others recorded growth rates lower than one percent per annum. The growth rates can be grouped into (i) 2 percent and above (ii) greater than the national average but less than 2 percent (iii) less than the national average but greater than one percent and (iv) less than one percent. The classification of states both by the size of labour force and its growth rates between 2007 and 2012 is given in Table 5.11. 5.28 The low growth states of Tamil Nadu and Kerala had a share of 9.70 percent in the total labour force during 114

2007, while the states with growth rates above one percent but below the national average had a share of 41.71 percent. The high growth states, however, had a larger share of 48.59 percent. 5.29 The growth rates of males and females also varied significantly among the states. The states with high growth rates in male labour force were not necessarily the same as those with high growth rates in female labour force. The classification of states with different levels of growth among males and females is given in Table 5.12. 5.30 The classification of states by growth rates of male, female and total labour force during the first period (2007-12) and the second period (2012-17) are given in Table 5.13 and 5.14 respectively.

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Table 5.11: Classification of States by Size of Labour Force & Growth Rates in Total Labour Force between 2007 & 2012 Size of Labour Force(million)

Growth Rates

Below one percent

Between one percent and national average

Over 50

Maharashtra

Between 40 and 50

Andhra Pradesh

Between 20 and 40

Tamil Nadu

Between national average and two percent

More than two percent Uttar Pradesh

Karnataka, West Bengal

Bihar, Gujarat, Madhya Pradesh, Rajasthan

Below 20

Kerala

Himachal Pradesh,

Assam, Haryana,

Jammu & Kashmir, Orissa,

Jharkhand, Uttarakhand,

Punjab, Chhattisgarh

Other NE States, Other states

Source : ibid

Table 5.12: Classification of States by Growth Rates of Male and Female Labour Force during 2007-12 Growth Rates

5.31 The states with a growth rate of over 2 percent in total labour force decreased from 11 to 7 during the second period. In the case of males, it reduced from 12 to 9 between the two periods.

Projected MCWS Labour Force 5.32 We had argued earlier (see Chapter 3) that the MCWS measure would give us a relatively more rigorous 115

definition of labour force since it is based on the intensity of work performed and those available for work. The projected MCWS Labour Force as on 1st April 2007 was 450.32 million as compared to 489.13 million as per UPSS measurement. The difference is about 38.8 million. The projections for 2002 and 2017 are 501.17 million and 550.53 million respectively. A comparison of UPSS and MCWS labour force projections is given in Table 5.14.

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

5.33 The maximum difference between UPSS and MCWS projections was in the case of rural females. Though the level of labour force as per MCWS was lower, the net addition over the years was large. The growth rates of the projected labour force are accordingly higher in the case of MCWS measurement. Between 2007 and 2012 it was 1.91 percent as per UPSS, while it was 2.16 percent as per MCWS. Similarly the growth rate between 2012 and 2017 was projected to be 1.90 percent as per MCWS against 1.65 percent as per UPSS.

State-wise Projections of MCWS Labour Force 5.34 Projections of labour force by state and population segments in terms of MCWS measurement are given in Annex 5.3 and state-wise and age group wise projections are in Annex 5.4. Though the absolute

values of projected labour force differ between the UPSS and MCWS projections, the relative positions of the states are comparable under both the concepts. In respect of the magnitude of labour force Uttar Pradesh, Maharashtra and Andhra Pradesh are the top three states in descending order which together accounted for about one-third of the total labour force in the country in 2007.

Additions to Labour Force 5.35 Given the differential growth rates in labour force across the states, we need to find out the distribution of the additional labour force. The additions during 2007-12 and 2007-2017 are given in Table 5.15. During the 11th Plan period (2007-12), majority of the additional labour force would be concentrated in 6 states and the same would hold for the ten year period between 2007 and 2017 also. It is reasonable to expect that there will

be movement of labour from the relatively surplus states to states that would offer a market for such labour. This will have important implications for migration. Such labour migration would be, by and large, among the unskilled and the less educated, seeking manual wage work given the high share of such labour in the total labour force and especially in some of the larger states.

Educational Status 5.36 The state-wise distribution of projected labour force by educational status according to UPSS measure is given in Annex 5.5 and according to MCWS measure is given in Annex 5.6. There is a consistent reduction with time in the aggregate illiterate labour force. But 28 percent or 164 million of India's labour force will still remain illiterate in 2017. To this we must add those with education not above primary level, which would constitute another 25 percent or 144 million. These two together constituting the 'least educated' would number to more than half (nearly 53 percent) of India's labour force. It is this dimension of the problem that would make the demographic dividend arising from an increase in the share of the working age population into a demographic burden if not a disaster. If this demographic burden has to metamorphose into demographic dividend, properly conceived and well-designed policy interventions, especially in respect of functional literacy and skill formation along with provision of such basic social security as food and health care assumes critical importance. Access to employment for such literate and skilled people will be realized as the demographic dividend. The projected UPSS labour force by educational level for the country as a whole is given in Table 5.16. The same for the projected MCWS labour force is given in Table 5.17. 5.37 As per UPSS measure, the percentage of illiterates in the labour force would decrease from 35.5 percent in 2007 to 31.4 percent in 2012 and further to 28.1 percent in 2017. The share of those with education up to primary level will almost remain static. The shares of those with higher levels of education would increase consistently. 5.38 As per MCWS measure also similar trends are visible except that the percentage of those with education

up to primary level will also get reduced marginally over the years. The marginal increase in the share of the workers by MCWS status shows that the subsidiary and part-time workers who are captured in the UPSS measures are the relatively less educated, perhaps the least educated. 5.39 The continuing demographic burden as revealed by the proportion of the least educated in the labour force might somewhat ease in terms of the share, albeit the absolute number will marginally increase - from 294 million in 2007 to 307 million in 2017 (Table 5.16). As figures 5.11 and 5.12 vividly portray, there is a sharp gender divide in that the incidence of the least educated is considerably higher among women than among men. While 58 percent of the women were the least educated in 2007, only 26 percent men came in this category. The male-female divide will further widen by 2017 despite continued reductions in the proportion of the least educated to 49 percent and 18 percent for women and men respectively. In the case of all the other educational levels women's achievement will continue to be around half that of men. 5.40 Despite the high visibility accorded to gender issues in development, the fact that a reasonable basic education continues to remain elusive for the majority of women should be viewed as a telling commentary on the differences between precept and practice, rhetoric and reality. That this is only one of the many manifestations of the differential human deprivation was brought out in our earlier Report on Conditions of Work and Promotion of Livelihoods (NCEUS 2007a). We showed there that the incidence of the least educated women mostly happened to be the overlapping group of the socially disadvantaged (STs, SCs and Muslims in that order), to the poor and vulnerable households, located in rural areas and working mostly, if not only, in the primary sector of the economy. What the projections presented here underline is the uncomfortable fact that at the historical pace of change, the situation is unlikely to improve but only marginally even at the end of the 12th Plan i.e. 2017. Once again, this reinforces our argument for a concerted national effort, positively discriminating in favour of the seven states that account for 67 percent of the problem of the least educated.

118

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

5.41 This warrants us to examine the situation from a regional perspective. The distribution of the projected labour force by educational levels across the states (Table 5.18) brings out rather sharply that the problem is mainly confined to ten or eleven of the 28 states and union territories in India. Let us look at the basic problem of illiteracy and identify the states that may not be able to, given the current pace of change, reduce it below 25 percent even by 2017. There are ten such states viz., Rajasthan, Andhra Pradesh, Uttar Pradesh, Madhya Pradesh, Bihar, Jammu and Kashmir, Jharkhand, Chattisgarh, Karnataka and Orissa. They account for 75 percent of the total projected illiterate labour force of 164 million in 2017. If we move the scale to the least

educated (illiterate plus those not more than primary level) and identify states with 50 percent or more of their labour force in this category in 2017, then the list will increase to eleven with the addition of West Bengal to the already mentioned ones. This means that of the eleven states with the highest incidence of the least educated, ten states also belong to the list of highest incidence of the illiterate labour force. 5.42 Some comments would be in order here to drive home the fact that the list includes not only states that have been identified as backward such as the BIMARU but also those known for their proactive state policies in attracting investment in knowledge-intensive industries

Table 5.18: Percentage Distribution of Labour Force by Education Level across States State/UT

Illiterate

Primary & Below Primary

Middle

Secondary & Higher Graduate & above Secondary

2007

2017

2007

2017

2007

2017

2007

2017

2007

2017

Andhra Pradesh

49.51

42.82

20.92

20.26

11.50

13.92

12.91

16.23

5.13

6.77

Assam

17.82

6.87

40.34

45.01

22.34

26.42

14.54

15.88

4.96

5.83

Bihar

45.47

34.36

22.10

25.46

11.92

14.07

15.36

20.16

5.12

5.96

Chhattisgarh

40.16

27.02

31.64

35.84

12.78

18.19

10.06

11.57

5.35

7.31

Gujarat

29.51

22.77

23.50

19.53

20.32

25.69

20.13

24.48

6.54

7.56

Haryana

30.72

24.18

24.46

23.65

11.15

11.37

25.54

30.02

8.12

10.77

Himachal Pradesh

21.79

13.40

31.84

33.97

12.29

12.68

27.37

31.10

6.70

8.85

J&K

36.63

32.46

18.93

19.02

20.58

23.21

18.72

19.90

5.14

5.58

Jharkhand

43.53

32.06

22.72

28.44

14.84

16.66

13.02

15.80

5.89

6.98

Karnataka

37.33

28.86

22.73

23.56

17.39

21.29

16.17

18.62

6.38

7.70

Kerala

6.05

5.27

23.75

15.69

32.99

35.25

28.56

33.43

8.65

10.36

Maharashtra

24.30

16.86

21.34

18.75

23.39

26.11

22.07

26.97

8.94

11.29

Madhya Pradesh

44.38

35.15

27.01

28.29

11.06

14.41

10.86

12.77

6.65

9.41

Orissa

39.97

29.19

26.30

27.19

17.68

21.58

10.30

13.78

5.75

8.26

Punjab

27.31

19.09

24.26

25.83

12.21

11.61

28.24

33.31

8.06

10.23

Rajasthan

50.74

43.02

22.10

23.69

12.15

14.70

10.23

12.89

4.75

5.71

Tamil Nadu

25.33

21.61

30.29

26.43

16.46

16.88

18.80

21.56

9.15

13.54

Uttar Pradesh

43.59

36.20

20.57

21.08

15.67

18.42

13.88

16.31

6.29

8.01

Uttarakhand

30.25

23.96

20.09

17.74

20.09

24.34

21.02

26.23

8.55

7.55

West Bengal

28.38

23.68

35.21

35.88

15.28

16.50

13.34

15.24

7.82

8.72

Other NE

18.03

8.22

35.88

37.48

21.60

25.42

17.01

19.77

7.48

8.99

Other states

10.42

5.58

19.95

19.00

16.34

19.28

28.83

30.62

24.45

25.52

All India

35.50

28.08

24.68

24.62

16.40

18.99

16.40

19.52

7.02

8.79

Source : ibid 121

The Challenge of Employment in India

significant variations across the states in India and the need to factor that in employment policies at the stages of both design and implementation at the state level, we feel it important to have the state-level projections of the labour force and their characteristics. Accordingly NCEUS has made the projections at the state level separately for each population segment and all India projection has been obtained by aggregation.

and e-governance (Andhra Pradesh and Karnataka) as well as those where majority of the workforce are already in the non-agricultural sector and with a supposedly propoor government for more than three-decades (West Bengal). In the southern Indian context, Andhra Pradesh's poor record in social sector development has been highlighted in the recent AP State Development Report (CESS 2006) as well as in a number of other studies. While Karnataka's record is better than that of Andhra Pradesh, the fact that a majority of its labour force will continue to be the least educated is in sharp contrast to its media image as a place for knowledge-intensive employment. The underlying common message, in our view, is the reality of social exclusion of vast masses of the working poor in the country as a whole and its heightened presence in these states as far as access to basic education is concerned.

Third, the Planning Commission used age and education specific LFPRs obtained from the NSSO’s 61 st Round EmploymentUnemployment Survey for projecting labour force and did not take into account the historical trends. The NCEUS used the age-sex-residence LFPRs of 1983, 1993-94 and 2004-05 for projecting LFPRs for each year. In this way, we were in a position to make projections consistent with the earlier trends.

Policy Implications 5.43 Several policy implications follow from the labour force projections for the next ten year period th th covering the 11 and 12 Plans of the country. Before we list them, it is important to state the following main differences between the methodologies used by the Planning Commission and the NCEUS for the projection of labour force:

First, the Planning Commission has used UPSS and CDS measures for the projection of labour force while NCEUS has used UPSS and MCWS measures. UPSS is a broad measure that conceals, to a great extent, the problem of underemployment in the country; it captures all those who are working or available for work. The MCWS captures the universe of the labour force in a more focused manner. As we demonstrated in Chapter 3, it also helps to identify not only the open unemployed category but also those who are underemployed as well as employed only on a part-time basis. Second, the Planning Commission projections were made at the all India level, oblivious of state-wise variations. Any policy based on such aggregate estimates is doomed to fail as it fails to obey the cybernetic law of requisite variety (Ashby’s Law of Requisite Variety). Given the

Lastly, the Planning Commission did not account for the declining trend in the LFPRs of younger age groups and those aged sixty and above. These trends were taken into account in the NCEUS projections. This is especially important in the context of a rising enrolment rate of children in educational institutions that should be viewed, however slow, as a positive development. 5.44 From a policy point of view, the projections here show the enormity of the employment challenge, especially of a kind that will offer gainful employment which will, at the minimum, ensure the basic needs of the households with socially acceptable conditions of work. The size of India’s labour force in 2007 was estimated at 489 million that is higher than the total population in 1961. In 2012 the size of the labour force will be in the range of 538 million that would be very close to the total population in 1971. By 2017 India’s labour force would exceed the total population in 1971 by 45 million. 5.45 The increasing size of the labour force was determined by the past population growth rates that were historically unprecedented mainly as a result of the gains in reducing mortality, without a corresponding reduction 122

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force th

in birth rates. During the 11 Plan period, the labour force would continue to grow at around 1.9 percent annually and is expected to decline to around 1.6 percent th annually during the 12 Plan. While policies and programmes for reducing the population growth have been in place for some time, the progress has been somewhat slow. Moreover, such progress as was registered in the past has been uneven across the states; a majority of them are yet to attain the replacement level fertility rate. Attention of the policy makers therefore needs to be directed at the state-level for effective implementation of population stabilization policies. From the experience of other countries as well as those states within India, women’s education complemented by food and nutritional security, especially of the mothers and children and adequate health care seems to be quite critical. Any further improvement in population growth will be translated into a slower pace of the labour force growth only after a lag of 15 years. 5.46 Such progress as has been made in the recent past has already started showing up in an increase in the working age population that could potentially contribute to what is called the demographic dividend. The realization of such a demographic dividend is, however, dependent on a number of preconditions. First and foremost, the accelerating economic growth rate has to be such that it creates gainful employment. Second, the labour force should have minimum levels of educational attainments and skill levels so as to contribute to productivity and secure adequate returns. Third, the process of economic development should help the increasing labour force move away from low productivity sectors such as agriculture into high productivity sectors. 5.47 In the absence of such a concomitant process of change, the expected demographic dividend could well turn out to be a demographic burden. In this respect, India lags considerably behind its counterparts in both the east and the south-east Asia. There is considerable backlog of illiterate men and women as well as those with low levels of education that would hardly make for the ability to acquire skills and knowledge. To avoid the prospect of this demographic burden, focused policies are called for. Two main elements of such a policy are: access to functional literacy and skill development and

basic social security to take care of food/nutrition and health care. 5.48 On both the counts, the problem is more serious among women in general and women workers in particular. There is, thus, the need to reorient and strengthen policies and programmes. States that warrant special attention with appropriate regional policies and programmes are Rajasthan, Andhra Pradesh, Uttar Pradesh, Madhya Pradesh, Bihar, Jammu and Kashmir, Jharkhand, Chattisgarh, Karnataka, Orissa and West Bengal. 5.49 However, equal attention needs to be given to those with some general education but without any formal skill acquisition. Those with middle level of education will be close to 18 percent of the total labour force by th the end of the 11 Plan. An equal share will also be of the group with secondary with or without higher level of training but not a college degree. These two groups would then constitute close to 36 percent of the labour force or closer to 200 million. They would require training in specialized skills if they are to be absorbed in employment demanding skills and consequently decent level of earnings. This group is also likely to be more vocal than their poorer counterparts with lower levels of education and would also be more aspiring than the former. 5.50 The group with higher educational qualifications had not only been reasonably taken care of but also witnessed expansion of opportunities in the recent past with the entry of a large number of self-financing (mainly private sector) educational initiatives. The recently started 30 Central Universities and a large number specialized institutions have also created opportunities at the top end of the educational spectrum. The challenge here is mainly one of quality and the ability to generate such specialized knowledge and skills demanded by a fast expanding economy. 5.51 From the perspective of the informal economy which will continue to dominate the Indian labour force for years to come, the challenge is to meet the ends of the first two groups that we mentioned above. Inadequate attention to this huge base of India’s educational pyramid will not only further accentuate the existing unacceptably

123

The Challenge of Employment in India

high levels of inequality but might even lead to social tensions and conflicts that would be detrimental to the long term development of the society in general and the economy in particular. 5.52 The issue of skill formation has therefore received our focused attention and a detailed report called Skill Development in the Informal Economy has been submitted to the Government. The report discussed in

Chapter 7 the main elements of the skill situation and a programme for skill formation and development arising out of our analysis of the size, growth and characteristics of India’s labour force. A combined programme of functional literacy with skill formation and up-gradation for the least educated members of the labour force along with skill development programmes for those with middle school level of education and above but not higher college education is therefore urgently called for.

124

Demographic Dividend or Demographic Burden? National and State Level Projections of Labour Force

Appendix 5.1: Methodology for Projection of Population & Labour Force Projections of Population by Age, Sex and Residence Projection of population by age and sex for the period 2001-2026 has been worked out by an Expert Committee constituted by the National Population Commission. The Committee has also made projections of rural and urban totals. However, in order to make labour force projections by applying projected labour force participation rates, projected population for urban and rural areas by age and sex are required. These population projections were made by the International Institute of Population Studies (IIPS) at the instance of NCEUS. The methodology involved the projection of population in urban areas by sex and age, applying corrections for ruralurban migration and obtaining projections for rural areas by subtracting age-sex projections for urban population from the projections made by the Expert Committee for total population. The age-sex projections of population for urban areas were made by using the ‘Cohort Component Method (CCM)’ for major states and the ‘Ratio Method’ for smaller states and union territories.

Cohort Component Method The use of Cohort Component Method requires the following inputs:

(i) (ii) (iii) (iv)

Smoothed age-sex distribution of the population for the base year Age-specific fertility rates for the base and terminal years Life expectancy at birth for the base and the terminal years Sex ratio at birth

(i)

Smoothed Age-Sex Distribution of Urban Population The Census 2001 age-sex distribution of urban population was smoothed by using a three-point moving average formula: S2=0.25U1+0.5U2+0.25U3 Si=0.25Ui-1+0.5Ui+0.25Ui+1

Where S2= S5-9 = Smoothed population of the second age group 5-9 U1=U0-4 = Observed population of the first age group 0-4 U2=U5-9 = Observed population of the second age group 5-9 and so on. Smoothed population of the first and the last age groups are obtained by using the following formulae S0-4=U0-14-[S5-9+S10-11] S75+=U15-80-[S15-19+S20-24+………+S70-74] S75-79=0.65S75+ for males S75-79=0.60S75+ for females S80+=S75+-S75-79 The smoothed population of North Eastern Region was obtained after combining all the seven states except Assam but including Sikkim.

125

The Challenge of Employment in India

(ii)

Age-specific Fertility Rate (ASFR) &Total Fertility Rate (TFR)

Age-specific fertility rate for the base period is obtained from sample registration system (SRS). A Gompertz Curve was fitted using urban total fertility rate for each year provided by SRS during 1981-2000 as it provides reliable estimates of fertility and mortality from 1981 onwards. Thereafter, urban total fertility rate is projected during 20012017 by taking upper and lower asymptotes. The upper limit (U) for low TFR states was taken as 6 children per women, for medium TFR states it was taken as 6.5 children and for high TFR states it was considered as 7. These assumptions are the same as considered in the National Population Commission report. The lower limit (L) taken as 1.6 for low TFR states, 1.8 for medium TFR states and 2.1 for high TFR states. Ln(-(Ln(TFR-L)/(U-L)))=Ln(-Ln.a)+t.Ln.b High fertility states: Bihar, Haryana, Madhya Pradesh, Rajasthan, Uttar Pradesh, Jharkhand, Chhattisgarh and Uttarakhand Medium fertility states: Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, North Eastern Region and Punjab Low fertility states: Andhra Pradesh, Jammu & Kashmir, Kerala, Orissa, Tamil Nadu and West Bengal Average age-specific fertility rates were computed for the years 1999, 2000 and 2001 from the SRS. The pattern of fertility was assumed constant over the projection period. However, for Himachal Pradesh, the projected urban total fertility rate was obtained by fitting 1991-2000 SRS fertility estimates. On the other hand, SRS does not have enough time series observations for Uttarakhand, Chhattisgarh and Jharkhand. We assumed the same rate of total fertility for their parent states in SRS during 1981 to 1998, but for these three new states fertility rates are estimated by using the proportion of (0-6) population from Census 2001. A similar procedure is followed by the National Population Commission in the case of projecting total population. The average age-specific fertility rates for Jharkhand and Chhattisgarh were obtained from SRS 2004-06. In case of North Eastern Region, Rele’s (1967) method has been used to provide fertility estimates from Census 2001 age data. It was assumed that fertility will attain the level of 1.8 children per woman by 2017. For North Eastern Region and Uttarakhand fertility estimates were calculated from Census 2001 data on children ever born. The SRS does not provide time series data on total fertility rate for Jammu and Kashmir. However, the national family health surveys (NFHS) give age-specific fertility rates as well as total fertility rate for the period approximately 1996-98 (NFHS II) and for 2003-05 (NFHS III). The average of these rates was incorporated for projecting the fertility rate for Jammu and Kashmir. Weighted average of the projected urban total fertility rates for 21 states was assumed as the projected fertility for the country as whole where the state’s weights being the respective percentage share of the country’s urban female population in the age group 15-49.

(iii) Life Expectancy at Birth ( e00 ) To project the life expectancy at birth (LEB), life tables have been constructed using urban age-specific death rates (ASDR) for the years 1999, 2000 and 2001 separately for males and females. These rates are available from SRS report 2001 published by the office of the Registrar General and Census Commissioner of India. Similar to the report of the National Commission on Population, three years average was used, since the year wise age-specific rates often show fluctuations especially at the state level. Later it was assumed that the mortality would follow the West Model Life Table pattern. In addition to it, the expected annual increment in the life expectancy by sex was 126

The Challenge of Employment in India

6

Employment Generation & its Quality: Looking through the Lens of Formality & Informality Introduction 6.1 In the earlier three chapters, we discussed the supply side of the labour force consisting of the employed and the unemployed. In particular, we examined the size, core characteristics and the regional, gender and social dimensions of the labour force in India. We also presented its past growth trends and the composition along with the future projections. 6.2 The key issue that concerns us is the overall numbers and the quality of employment generated in the economy. As we have pointed out in chapter 2, the two aspects (viz. the number and the quality of employment), though closely related, are analytically separate issues. In this chapter we first deal with the broad dimensions of employment likely to be generated in the economy. While doing so, we also examine some crucial aspects which have a bearing on the quality of employment. These include a discussion on such aspects as underemployment and part-time employment, unemployment, employment in the formal and informal sectors, and finally, formal and informal employment. 130

6.3 As highlighted by us earlier, the quality of work has several dimensions including regularity of work (employment security), income/ earning security, social security and decent conditions of work covering minimum wages, reasonable hours of work and work environment (space, temperature, light, hygienic conditions, etc). The quality of employment, thus, comprises a number of work related factors which have impacts on the economic, social, psychological and the state of well being of the workers. 6.4 We, then, discuss some of the constraints on improving growth and productivity among principally self-employed units in the informal sector,. The analysis and the issues highlighted provide us the basis for the evolution of an employment strategy that takes into account the low quality of work now dominating the Indian economy which also leads us to an examination of the working conditions and steps required to improve growth and productivity in the agricultural and non-agricultural informal sector enterprises.

Employment Generation & its Quality: Looking through the Lens of Formality & Informality

Commission’s Perspective on Employment Question 6.5 The Commission agrees with Keynes that the “whole of the unemployed is available to increase the national wealth. It is crazy to believe that we shall ruin ourselves financially by trying to find means for using it and that safety lies in continuing to maintain idleness” (Keynes 1981: 881). The Commission also endorses Keynes’ view that the two most outstanding flaws of capitalism or market economy as it is sometimes called are its failure to provide full employment and the tendency to worsen economic inequality.

an alternative employment and anti-poverty policy that will not have the defects of mainstream policy prescriptions may contain a mix of euthanasia of the rentier, modest tax bias and transfers in favour of the poor and maintaining a tight labour market, the focus of such policies and programmes has to be employment creation.

6.6 The dominant view today is that growth per se will take care of unemployment, underemployment and poverty and market-led growth is most efficient. Hence growth should be stimulated at any cost. The usual prescriptions for stimulating growth are to promote saving and investment through tax cuts and interest rate cut and boost aggregate demand through tax cuts, social protection expenditure and other spending. Saving promoted by favourable tax rebates would favour the rich and decrease marginal propensity to consume and hence the effective demand. Promotion of growth through incentives to private investment suffers from several infirmities such as increase of capital’s share in national income, worsening of wage differentials between the centre and peripher y, or what we would like to characterize here as between formal and informal sector, inflationary tendencies and financial fragility. Thus, the twin fundamental faults of capitalism and their concomitant problem of poverty would get further exacerbated than ameliorated.

6.8 It is interesting to note that, starting with the General Theory, Keynes increasingly measured the demand gap in terms of labour rather than in terms of output as the post-war Keynesian orthodoxy has been advocating. In his guidance for post-war budgetary planning Keyenes advised to plug ‘any output gap in terms of the number of the unemployed that needed to be hired’. It was labour demand gap that needed to be closed (Tcherneva 2008). Closing labour demand gap amounts to creating a tight labour market in the sense of the condition of almost full employment. This would help the poor as they would move from being unemployed/ underemployed to employment as involuntary unemployment/underemployment declines. Evidence shows that as employment rises relative wage of the poor rises too and wage inequality declines (Wray 2007, Galbraith 1998). It stands to reason that under conditions of tight full employment the number of workers per family will go up, increasing the family income. What is needed is not a ‘trickle down’ policy but to ‘bubble up’. Raising employment to full employment levels should be the immediate priority of public policy. For this purpose spending should be directly targeted to the unemployed and the working poor, mostly in the form of public works programmes. Government should function as the employer of last resort (ELR). Public works would obviate the problems of private spending and investments.

6.7 The two fundamental faults of a market-led economy - the persistent reproduction of unemployment and accelerating arbitrary growth of inequality and their concomitant of poverty- thus cannot be solved via promotion of private investment. It is such an understanding of the capitalist growth that led Keynes and later the post Keynesians like Hyman Minsky (see Tcherneva 2008, Wray 2007) to advocate targeted public investment for employment creation rather than aggregate demand expansion through monetary and fiscal policy, except perhaps in the condition of depression. Although

6.9 In a country like India that is increasingly being led by the market forces, both internal and external, there is already a huge rural hinterland and informal sector. The integration of rural production and distribution, especially in agriculture, with the capitalist market, would hasten the disintegration of working peasantry and village artisans making their living off agriculture and traditional occupation much more precarious. These impoverished peasantry and artisans would then seek and get refuge in the informal sector that is co-terminous with undervalued labour, at least for the present. This would force larger

131

The Challenge of Employment in India

number of workers to seek subsistence, however precarious, in the informal or unorganized sector. Such growth would thus enlarge the informal sector still further. This dynamics of production and extended reproduction of the underemployed and the undervalued labour in the burgeoning informal sector is a starkly obvious phenomenon in India. So the problems of unemployment, underemployment and poverty loom too large but it can be solved if we go for a well designed project of public investment targeted directly at the unemployed and underemployed. 6.10 Accordingly, this Commission would reverse the priority of development agenda from growth first to one of employment first. According to Okun’s law every 1 % fall in unemployment would raise GDP by 2.5 per cent. As per the calculations of Minsky for USA, the decreasing unemployment to 2.5 per cent from the level of 5% ‘would create 3-5 times the GDP required to raise all households above the poverty line. Accordingly, the higher employment goals would more than pay for poverty removal. Skills and mobility will certainly help but only if investment is forthcoming for absorption of the surplus skilled labour. Otherwise all that would happen is the ever lengthening queue of employment seekers. 6.11 As for the self employed in agriculture and informal non-agricultural sector, it may be essential to differentiate between those who have landed there for lack of wage work and are managing to eke out more precarious a living than unskilled wage workers. They comprise almost all the workers called Own Account Enterprises/Workers and those who are hiring a few workers in their establishments – what we call here micro enterprises employing less than ten workers. The former may best be served by wage employment via public works while the latter would need wherewithal such as access to credit, technology and marketing for growth.

Projections of Employment 6.12 Having considered the supply characteristics of the labour force in the previous chapters, the next logical step is to find out the demand for this labour force. As we pointed out in Chapter 2, we come across here a major stumbling block due to the absence of a credible mechanism to monitor the trends in employment in the

Indian economy. This absence is conspicuous when we consider the availability of statistics relating to other important macro economic variables such as GDP, prices, exports and imports, foreign exchange rate and reserves, and money supply on a quarterly and/or monthly basis. In contrast, credible statistics on employment is available only on a five-yearly basis from the NSS rounds. Although the five yearly surveys are supplemented by the NSSO with annual “thin” rounds, these are not carried out every year and suffer from problems of comparability as well as long publication lags. The DGET data, as we noted earlier, also suffers from serious drawbacks of incomplete coverage, under-reporting of employment and a host of other problems (for details see, NCEUS 2008a). 6.13 In view of the above constraints, the Commission has estimated the likely generation of employment since 2004-05 and up to 2008-09 based on the realised growth in GDP and its past employment elasticity. Further, we have also projected the employment generation in the th terminal years of the 11 Plan (2011-12) and also the th 12 Plan (2016-17). Given the onset of the global economic crisis and its impact on India, we have worked out alternative scenarios of employment generation. 6.14 The regular series of GDP estimates are available only for the years up to 2006-07. Quick estimates for 2007-08 are also available at the time of writing this report. As per these estimates, the growth in GDP during 2006-07 was 9.88 as compared to the previous year and it was 9.01 percent during 2007-08. The growth in 200809 was 7.09 percent as per advance estimates. 6.15 In the context of the global economic melt down and its adverse impact on Indian economy, it is unlikely that we would achieve and sustain a growth rate of 9 percent in 2008-09 and beyond. Given that the long term growth rate in the past has been around 6 percent, a somewhat optimistic prediction would be 7 percent while a conservative lower bound of the growth rate could therefore be taken as 5 percent. As such, we have made projections assuming growth rates of 9%, 7% and 5%. Since the projections of employment based on MCWS measurement are considered by this Commission as being more relevant, we have used these in this chapter. For comparison purposes, the projections based on UPSS measurement have also been worked out and given in 132

Employment Generation & its Quality: Looking through the Lens of Formality & Informality

the Appendix 6.2 to this chapter. While the methology of employment progection is given in Appendix 6.1. 6.16 The main findings of the Commission with regard to the likely employment generation may be summed up as in the following three major points: (i) At 7 percent growth rate, unemployment (MCWS) will th more or less remain the same even at the end of 12 Plan. A higher growth at 9 percent will almost eliminate it (but will still leave the task of providing adequate employment to the under-employed and the part-time employed). A lower growth rate of 5 percent will increase unemployment. (ii) The share of the informal sector in the total employment will continue to remain around 86 percent. (iii) There will be increasing informalisation of employment in the economy reflecting the informal nature of the additional employment generated in the formal sector. Therefore, the problem of quality of employment will continue to loom large in the Indian economy.

6.17 The projected employment at the end of Tenth Plan (2006-07), Eleventh Plan (2011-12) and Twelfth Plan (2016-17) by using different growth rates and MCWS measurement along with the estimates for 200405 are given in Table 6.1 and those based on UPSS measurement are given in Appendix 6.2. 6.18 As per the above projections, the employment absorption will be 60.7 million during the Eleventh Plan and 68.2 million during the Twelfth Plan, if a 9 percent growth rate in GDP is sustained in 2009-10 and beyond. The employment addition reduces to 38.3 million and 28.1 million respectively during the two Plan periods if the growth rate becomes 5 percent. The additional employment likely to be generated under different growth scenarios in different industry groups as per MCWS measure is given in Table 6.2.

6.19 In both the Plan periods the maximum employment addition will be in services under all the growth scenarios, if the past trends are continued. The employment addition during the Eleventh Plan as per UPSS measurement will be 68.4 million if a growth rate of 9 percent is sustained beyond 2009-10 and 42.3 million if the growth rate is 5 percent. The additions during Twelfth Plan will be 77.1 million and 31.2 million with GDP growth rates of 9 percent and 5 percent respectively. 6.20 Our first finding therefore is that a higher growth of 9 percent will lead to a tightening of the labour market th by the end of 12 Plan (in terms of those who will be in the labour force in the MCWS case) and a lower rate of 7 percent will leave it more or less unchanged. In this ‘business as usual ’ scenario unemployment rate will increase as the growth rate goes below 7 percent. 6.21 However, we need to go beyond this conventional approach to employment generation. The main burden of the Commission’s work, articulated in the earlier reports as well as in this one, is that such an approach conceals the poor quality of work. These are discussed here in terms of (a) employment security by examining employment through the lens of formality and informality as well as the various dimensions of unemployment and underemployment, (b) income security by examining wages and earnings, (c) social security, and (d) conditions of work.

Structure of Employment in the Formal & Informal Economies 6.22 One of the first tasks of this Commission has been to adopt uniform definitions of the informal, or what is called in India, the unorganised sector as well as informal employment. On the basis of an examination of the international debate on this issue as well as the practices followed in the Indian statistical system, the Commission recommended the following definitions.

•

“The informal sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers”.

•

“Informal workers consist of those working in the informal sector or households, excluding regular workers with social security benefits provided by the employers and the workers in the formal sector without any employment and social security benefits provided by the employers”.

6.23 Both these definitions cover the three major sectors of the economy viz., agriculture, industry and services unlike the practice in some other countries where urban self-employment or urban employment other than those in the formal sector alone are considered. A detailed Report on Definitional and Statistical Issues Relating to the Informal Economy has dealt in great details the rationale for these definitions, the statistical procedures used, estimated employment in the informal sector and informal economy as well as the national income originating from the informal sector. Recommendations have been made that in future the terms ‘unorganised’ and ‘informal’ be used interchangeably in India leading to the adoption of ‘informal’ in future. 6.24 A summary of the employment profile in India in the informal and formal sectors shows the predominance of the informal sector as well as the informal economy (employment in the informal sector and informal employment in the formal sector). (Tables 6.3 & 6.4). The percentage shares are given in Appendix 6.9. According to the estimates provided by NCEUS, the total employment in the Indian economy was 456 million in 2004-05. Of the total workforce, the informal sector accounted for 86 percent and the informal workers without any job or social security accounted for 92 percent, 6.25 In the informal sector, wage workers constituted 36 percent and the remaining 64 percent were selfemployed. Agriculture sector accounted for 64 percent and non-agriculture accounted for 36 percent of the total informal sector workers. The agricultural sector consists almost entirely of informal workers (98 percent) who are mainly the self-employed (65 percent) and casual workers (35 percent). Even in the non-agriculture sector nearly 72 percent of the workers are in the informal sector. These workers are mainly the self-employed (63 percent), followed by casual workers (20 percent) and regular workers (17 percent).

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Employment Generation & its Quality: Looking through the Lens of Formality & Informality

6.26 Total employment in the economy has increased from 396 million in 1999-2000 to 456 million in 200405. Since there is not much change in the organized or formal employment during this period, the increase in total employment has been almost an informal kind. Although employment increased by 14 percent in the organized sector over this period, the entire increase has been mostly informal in nature, i.e., without any job or social security. This constituted what can be termed as informalisation of the formal sector.

projections are based on past trends, this scenario reflects, what we would call, 'business as usual'. In other words, unless concerted efforts are adopted for promoting a more employment-friendly growth strategy in the formal sector, the dominance of the informal sector will continue to remain unchanged.

Formal & Informal Sector Shares

6.28 The estimates of workers by industry and sector under various GDP growth scenarios and the corresponding percentage shares based on MCWS measures are given in Appendix 6.3 and those based on UPSS measure are given in Appendix 6.4

6.27 The projections of employment were made for formal and informal sectors within each industry group by using average annual changes in the percentage shares of each industry and sector between 1999-2000 and 200405 as explained in Appendix 6.1.The distribution of total workers by formal and informal sectors on the basis of MCWS measurement are given in Table 6.5 and those based on UPSS measurement are given in Appendix 6.2 Under the three assumed growth rates scenarios what is being revealed is the constant share of employment in the informal sector in the foreseeable future. Since the

6.29 In the case of both industry and services, the shares of informal sector employment will increase consistently over the years as per all the projections. With a 9 percent growth in GDP, the share of informal sector in employment in industry will go up from 70.24 percent in 2004-05 to 73.44 percent by the end of Eleventh Plan and further to 75.60 percent by the end of Twelfth Plan. In the case of a 5 percent growth scenario, the share will go up from 70.24 percent in 2004-05 to 72.70 percent in 2011-12 and to 73.65 percent in 2016-17. Similar trends are visible in the case of services sector also as the share

of informal sector will go up from 72.35 percent in 200405 to 77.33 percent by 2011-12 and to 80.44 percent by 2016-17 in a 9 percent growth scenario. In the case of a 5 percent growth scenario the share of informal sector in the services sector employment will go up from 72.35 percent in 2004-05 to 76.36 percent by the end of the Eleventh Plan and further to 78.00 percent by the end of Twelfth Plan.

6.30 This again is a significant finding. What this means is that even with a structural transformation in employment from agriculture to non-agriculture, it will principally be a movement of informal workers from agriculture to the industrial and service sectors where they would still remain as informal workers. 6.31 The above projections are not without limitations. The growth rate in worker productivity used

Employment Generation & its Quality: Looking through the Lens of Formality & Informality

6.33 According to the Planning Commission’s projections employment absorption during Eleventh Plan will be 58.07 million as compared to 60.74 million as per NCEUS projections. The corresponding projections for the Twelfth Plan are 57.89 million and 68.2 million respectively. All these projections are based on a GDP growth rate of 9 percent till the end of Twelfth Plan.

for adjusting GDP growth rates over the years are based on the estimates for the years 1993-94 and 2004-05. It is known that labour productivity improved substantially during this period and these growth rates are used for discounting the GDP estimates due to productivity growth. As per NCEUS estimates, the overall rate of growth in productivity was 4.34 percent per annum which is close to 4.35 percent estimated by the Planning Commission. The elasticities themselves are estimated based on the relationships observed during two points of time.

6.34 As per Planning Commission, the annual growth rate of labour productivity during the period 2006-07 to 2016-17 is estimated at 7.82 percent (see page 83, Annexure 4.2, volume-1), though as per NCEUS projections the overall growth in labour productivity is unlikely to be accelerated except for a marginal change because of sectoral shifts in GDP contributions. The productivity growth rate between 2006-07 and 2016-17 as per NCEUS projections will be 7.37 percent in the formal agricultural sector and 1.94 percent in informal agricultural sector. In the case of industry the productivity growth rate will be 5.03 percent in the formal sector and 2.48 percent in the informal sector during the same period. The rates of productivity growth in the services sector will be 6.64 percent and 2.41 percent in the formal and informal sectors respectively.

6.32 Planning Commission also used a similar methodology for projecting employment generation th th during 11 and 12 Plans. The Planning Commission, however, used Current Daily Status (CDS) measurement for projecting employment generation. As we already stated in Chapter 3, CDS measure indicates the average number of persons employed on any particular day and ignores the identity of the individual worker. It also does not differentiate between those employed for 0.5 days and 7 days in a week. The comparative projections of labour force and employment by Planning Commission and NCEUS are given in Table 6.6.

Shares of Formal & Informal Workers 6.35 The shares of informal workers in the informal and formal sectors were projected on the basis of average annual changes between 1999-2000 and 2004-05 in the relative shares of each group as explained in the Appendix 6.1. The distribution of total workers by formal and informal work status on the basis of MCWS measurement are given in Table 6.7 and those based on UPSS measurement are given in Appendix 6.5 The share of informal workers as per MCWS measurement was 91.83 percent in 2004-05. It increased to 92.07 percent in 200607. It would further increase to 92.92 percent by the end of the Eleventh Plan in the high growth scenario and 93.90 percent by the end of the Twelfth Plan. A low GDP growth rate of 5 percent would increase the share of informal workers to 92.73 percent by 2011-12 and 93.46 percent by 2016-17. This implies that there will be increasing informalisation of employment. 6.36 The estimates of workers by industry and status of wok and the percentage shares based on MCWS measure are given in Appendix 6.6and those based on UPSS measure are given in Appendix 6.7. The increase in the shares of informal workers is significantly large in the case of both industry and services. While it increases from 89.64 percent in 2004-05 to 94.95 percent by 201617 in the case of industry, the change during this period is from 79.68 percent to 86.77 percent in the case of services if the GDP growth of 9 percent is maintained. The pattern of increase does not change much even with

a 5 percent growth in GDP. This again confirms the increasing informalisation of formal sector workers. 6.37 The fourth and a more significant finding is that the economy will experience a greater degree of informalisation of employment that will increase the already high share of informal workers (as opposed to workers in the informal sector) from 91.8 percent to 93.9 percent by 2016-17. This is because the incremental employment in the formal sector will mostly be of an informal kind in the ‘business as usual’ scenario.

Unemployment 6.38 According to the Commission’s measurement based on MCWS, the unemployed persons (Table 6.8) relate to those who will be unemployed for a major part of the time in the labour force. Appendix 6.8 gives the projections based on UPSS. At a higher growth rate of the economy, the unemployment should have come down by 2008-09. However, given the emergence of a slow down in the economy both the absolute magnitude and the rate of unemployment will increase by 2017 if the growth rate goes down below 7 percent. In fact, with a 5 percent growth rate, the unemployment rate will almost th double by the end of the 12 Plan and will increase by th 40 percent by the end of the 11 Plan i.e. 2012.

Part Time Workers & the Underemployed 6.39 As we explained in Chapter 2, those who are not in the labour force for 3.5 days or more in the

reference week are not included in the MCWS labour force and work force. However, there are persons who have worked for at least 0.5 days but not over 3.0 days in the week. Such workers are categorized as part time workers. Those among them who were not available for work even for 0.5 day during rest of the week are categorized as strictly part time workers and those available for work for at least 0.5 days during the week are classified as underemployed. These part-time workers are marginal or subsidiary workers and given work opportunities, it is most likely that they would be prepared to avail them. Any employment strategy, therefore, must also cater to the employment needs of these workers. As per the projections of the work force by MCWS and CWS, the projected strictly part time workers and underemployed in different growth scenarios are given in Table 6.9.

6.40 In the case of a 9 percent GDP growth scenario, the Strictly Part Time Workers will increase from 13.1 million in 2004-05 to 17.6 million in 2016-17. Underemployed in the mean time will increase from 9.6 million to 17.3 million. The underemployed persons will become 15.3 million by 2016-17 if the GDP growth rate is reduced to 5 percent. The existence of such a large number of part-time/underemployed workers is a challenge to policy, especially as a large proportion of them happens to be women. Juxtaposing these figures with those of employment generation given in Table 6.1, we can see that even under the high growth scenario, sufficient employment opportunities will not be generated to address the employment needs of the large numbers of part-time or underemployed workers. Special policies/ programmes may be required to cater to them.

Table 6.9: Projections of Strictly Part Time Workers & the Under-Employed Item

Strictly Part Time Workers Underemployed

GDP Growth Rate (%)

Number (million) 2004-05

2006-07

2011-12

2016-17

9

13.06

13.83

15.63

17.62

7

13.06

13.83

15.26

16.59

6

13.06

13.83

14.91

15.63

9

9.57

10.70

13.69

17.25

7

9.57

10.70

13.37

16.25

6

9.57

10.70

13.06

15.31

Source: ibid. 139

The Challenge of Employment in India

Socio-economic Profile of Unorganized the groups the unorganized sector workers have lower years of schooling than their organized sector counterparts. Workers 6.41 The Commission’s earlier report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector (NCEUS 2007a) has dealt with in detail the size, composition and characteristics of the informal sector as well as the informal economy in India. Here we give a succinct summary of those findings with a view to provide a background to the subsequent discussions on the employment strategy with particular reference to the problems of the wage employed and the self employed. 6.42 Limited access to human and physical capital among workers acts as a major constraint on access to employment, quality of employment or growth of selfemployment activities. Analysis of data on land ownership shows that a substantial proportion of wage workers in agriculture (77 percent) and all workers in non-agriculture (75 percent) are either landless or land-poor. Selfemployed in agriculture have better access to land ownership. Landlessness is the highest among Hindu SCs and Muslim OBC and the least among Hindu upper castes. This has implications for seeking any kind of work in the non-agricultural labour market as well as securing a living wage. 6.43 In the present era, education is important to obtain gainful, productive and remunerative employment. The educational profile of workers reveal that the average years of education received by the workers in the unorganized sector (6.6 years) is about 3.5 years less than that received by workers in the organized sector (10.1 years). The gender difference in average years of education is striking – women received fewer years of schooling than men in all segments of the workforce. Casual workers are at the bottom of the educational ladder. In fact, rural casual non-agricultural workers and rural agricultural workers have the lowest level of education and literacy. 6.44 In addition to access to education and land ownership, a third dimension of vulnerability is introduced by the socio-religious groups to which the workers belong. Among the social groups, STs have the lowest average years of schooling followed by Muslim OBC, Hindu SCs and Hindu OBC in that order. Among all

The self-employed workers have higher mean years of schooling compared to the casual workers, though lower than that of regular workers among men and women in rural and urban areas. Casual women labour among the ST and SC communities in rural and urban areas and women among the rural and urban Muslims have the lowest mean years of schooling. At the other extreme, upper caste Hindus have much higher educational attainment than all other social groups. 6.45 While 29 percent of the male workers were able to access organized sector jobs, only about 27 percent of women were able to do so. However, there are striking religious differences. While upper caste Hindu men (38 percent) and women (37 percent) were most likely to get organized sector jobs, Muslim OBC men (12 percent) and women (13 percent) were least likely to do so. Muslim Others also fare worse in this respect. The highest proportion of casual workers in the non-agricultural unorganized sector is in the case of ST men and women followed by the SCs. The upper caste Hindus are least likely to be casual workers. 6.46 Muslims are overwhelmingly concentrated in the unorganized sector and in self-employed activities to meet their livelihood needs. The upper caste Hindus fare the best – they have better access to quality employment and productive self-employed activities due to their better access to education and land ownership. This is further reflected by comparing the poverty ratios across the groups. Poverty ratios are the highest among the casual workers in the unorganized sector both in rural and urban areas. However, it is important to note that SCs and STs have a higher incidence of poverty than the casual workers both in rural and urban areas. In other words, social status seems to have an overbearing influence on poverty compared to the work status. Casual work status and SC/ ST status emerge as a deadly combination with the incidence of poverty. It has important implications for the quality of employment as well.

Wages & Earnings 6.47 Informal workers earn their income either through wages and/or through earnings arising from self-

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Employment Generation & its Quality: Looking through the Lens of Formality & Informality

employment. Several studies have pointed out the uncertainty, irregularity and inability to secure even minimum wages for the wage employed and the inadequacy of earnings for meeting the basic household needs of the majority of the self-employed, if not all. 6.48 The detailed review of wages and earnings carried out by us in NCEUS (2007a) has brought the many characteristics of wage payment systems for the unorganised workers. Wages in the unorganized sector are arbitrarily fixed, often without regard to the minimum wage legislations, which adversely affect the income of the wage workers in general, and women workers in particular. Overtime rates were rarely found to be observed. Even for those engaged over long periods, no allowance was made for weekly holidays or other leave entitlements. In most cases, informal workers were denied provident fund and other social security benefits despite the legal entitlement to the same. Overall, the benefits of the provisions of the laws relating to wages and provident fund did not reach the construction workers and contract labour. Gender discrimination was well entrenched and there were numerous cases where women workers were paid much less than the men for similar work. Besides women’s work was subject to stereo-typing and segmentation and they were more likely to predominate in the unskilled and low paid jobs. Although both piecerated wages and time-rated wages are prevalent in the unorganized sector, males are more likely to be in timerated jobs. In putting-out (sub-contract) jobs, delays in payments and arbitrary deductions were rampant. On the whole, these factors indicate the kind of vulnerability and discrimination the wage workers in general and women in particular face. All these lead to lower earnings and extremely deplorable conditions of the working poor in the informal sector. 6.49 In India, the Minimum Wages Act 1948 fixes the minimum wages payable to any person who is in an employment specified in the schedule. Most studies that have examined the application of minimum wage legislation to workers in the unorganized sector show that the Act has not been used to protect the interests of the poor and the unorganized sector workers. Other limitations of the Act included infrequent revisions and inadequate cost of living adjustment leading to a fall in

the real minimum wage over time. Other constraints of ineffectiveness of minimum wages include the absence of criteria for fixing the minimum wages, inadequate sanctions and cumbersome penalties. There are vast differences in the minimum wages set for different employments within a state and across the states. 6.50 Based on the recommendations of the Central Advisory Board, the Central Government recommends a National Minimum Wage and all states have been requested to ensure fixation of wages in all the scheduled employments at a rate not below the recommended national minimum wage. This was fixed at Rs. 66 per day with effect from 1-02-2004. NCEUS, by using the “basic minimum wages” suggested by the National Commission on Rural Labour (1991), arrived at a ‘notional minimum wage’ of Rs. 49 in rural areas and Rs. 67 in urban areas at 2004-05 prices. The NCEUS has used these two sets of minimum wages as benchmarks to compare the actual average daily wages per worker. 6.51 The share of wage workers securing wages below the National Minimum Wage norm is significantly high across industries, clearly indicating that the minimum wage regulations are hardly being followed and applied in industries. In fact, 85 percent of all casual workers in rural areas and 57 percent of them in urban areas get wages below the minimum wages. The difference in the proportion of workers below the minimum wage norm in rural areas and urban areas is more marked for the non-agricultural workers, with urban workers being considerably worse-off. Among industry groups the proportion of men below the minimum wage is higher in trade, where as among women it is highest in manufacturing in rural and urban areas. 6.52 As mentioned earlier, casual workers have concentrated in certain manufacturing industries. In rural areas the lowest average daily wage was received by workers in the tobacco industry (mainly women). About 92 percent of them received wages below the national minimum wage norm. In contrast, workers in the wood and wood product industries (mainly men) had the highest average daily wage and less than 40 percent of them had wages below the minimum wage. 141

The Challenge of Employment in India

6.53 Among the states, Madhya Pradesh and Orissa had the highest proportion of casual non-agricultural workers receiving wages below the minimum wage norms in both rural and urban areas. In contrast, Kerala and Punjab recorded the least proportion of casual workers receiving wages below the norms. 6.54 The casual agricultural workers in rural areas were worse-off compared to non-agricultural workers. The share of the regular unorganized workers in the organized sector who received wages below the minimum wage was slightly better than the other categories of workers.

Conditions of Work of Agricultural Wage Workers 6.55 As shown in our Conditions of Work report, agricultural labourers are characterised by low levels of living, high insecurity and poverty levels. With no physical and human capital assets, they largely take up wage work in manual agricultural activities. The socially backward like the scheduled castes and scheduled tribe agricultural workers are the most predominant within this group. 6.56 Overall wage levels of agricultural labourers have been very low and further the wage rates have registered a low growth rate particularly through the nineties. Taking a wage of Rs.45 as the cut-off wage for all states the Working Conditions Report has noted that 76 per cent got wage rate below this cut-off rate in 199900. However in Kerala, Haryana and Punjab a majority had a wage rate above Rs.45. 6.57 The employment days for agricultural wage labourers are characterised by great deal of uncertainty because of seasonality of operations. The pattern of employment days indicates that there are ups and downs depending on the agricultural performance of the year.

Conditions of Work of Wage Workers in Non-agricultural Sector 6.58 As of 2004-05 there are about 53 million wage workers in the unorganized non-agricultural sector and 77 million unorganized or informal workers who include

the informal wage workers in the organized sector. Broadly, the wage workers have concentrated in a small number of activity groups. Among men, more than 90 percent of the wage workers are engaged either in some kind of manufacturing, construction, trading or transport activities. Among women, more than 90 percent of wage workers are engaged in either some kind of manufacturing, construction activities or just domestic services. 6.59 Casual workers constituted about one fifth of the workers in the unorganized non-agricultural sector. Among the casual workers, more than half were engaged in the construction sector, followed by one fifth in the manufacturing sector. More men than women workers are engaged in construction (56 percent and 39 percent respectively). In contrast, more women than men workers are engaged in the manufacturing (29 percent and 17 percent respectively). Within the manufacturing sector, textile industry was the largest employer of casual workers, more so for women (37 percent for women and 19 percent for men). Nearly one-fourth of both the men and women workers in the manufacturing sector are engaged in other non-metallic mineral products. Other manufacturing industries (e.g., motor vehicles, auto components, machinery etc.) employs about one-fourth of the men casual workers in the manufacturing sector. 6.60 Regular workers constituted about 17 percent of the non-agricultural workers in the unorganized sector. Among men regular workers, manufacturing, trade and transport, storage etc. are the major sources of employment. Among the women regular workers, as high as 54 percent were hired by private households mainly in domestic services, and 13 percent each by education, health and manufacturing. Among the regular workers within the manufacturing sector, almost half of the men are concentrated in other manufacturing industries (e.g., motor vehicle, auto components, machinery etc), and women are concentrated in other manufacturing, textile products, and tobacco product industries. As regards regular unorganized workers in the organized sector, majority of such male workers are in the manufacturing sector and the women workers are in the service sector, again in education, health etc.

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Contractual Work Status 6.61 Varying forms of work contracts involve differences in the legal and social protection of workers. In 2004-05, nearly all the casual workers and a vast majority (92 percent) of regular workers in the unorganized sector in India did not have a written work contract. In contrast, about half of all the wage workers and about four-fifths of the unorganized regular workers in the organized sector had written contracts. Studies show that the contractual status of informal sector workers changes very little with duration of employment with an overwhelming majority continuing to be of temporary status. A few studies have found that written contracts were issued to very few skilled workers, mostly men. 6.62 How employment is obtained by the workers in the unorganized sector is a crucial determinant of employment quality, job choices and job mobility. The Labour Bureau surveys show that a large part of the unorganized employment in the industries such as textiles, garments, power looms, agarbati and toys and dolls, is obtained at the factory gate (Labour Bureau 1998). Workers without access to caste or community networks have to shift from one ‘factory gate’ to another till they get a job. Another, perhaps more important, route to getting job is through a family, caste and community based networks. The third route is through labour contractors or ‘Jamadars’. Contract labour was found in large numbers in certain activities in the unorganized sector such as in stone quarrying, beedi rolling, rice shelling, brick-kilns and construction. In construction, an estimated 10.7 million workers, accounting for 83 percent of all construction workers in India in that year, were employed through contractors and did not receive minimum employment protection and benefits whatsoever. A major drawback of the contract labour system is that typically the working conditions are poor, workers do not receive wages in full measure and neither the contractor nor the principal employer takes responsibility for the workers’ welfare. Similarly another group who also face unfavourable employment contracts are the so called ‘temporary workers’. According to the Labour Bureau sur veys, temporar y workers dominated employment in rice shelling, match industry, marine fishing, woollen carpet manufacture and toy and doll

industry accounting for over half the workforce in these industries (Labour Bureau 1992c).

Hours of Work 6.63 Long hours of work in the unorganized sector beyond the labour and regulatory norms in India have been highlighted by the NCEUS Report on Working Conditions. There did not seem to be much difference in the hours of work by gender, implying that most of the men as well as women are exposed to long hours of work in factory jobs. In handlooms, work is organized in such a way that wages were based on a 12-15 hours/day. In Dharavi’s leather accessories manufacture, it is common to work for 15-17 hours a day, including 2-3 hours breaks for lunch and dinner. Similar is the situation of workers in the fireworks in Sivakasi where workers normally start work at 6 am and continue till late evening. These workers are concentrated in fireworks, match making, brassware, glass bangle manufacture, diamond cutting and power looms. Contrary to stipulated norms of 48 hours a week, work by coolies, porters, workers in fishing industries work over very long spread over, lasting up to 52 hours as in the case of marine fishing industry. 6.64 A study of the construction industry found that only the males are registered as workers in the muster roll of the employer and the rest of the family members including women remain invisible to statistics, policy and social security provisions. In this study, working hours of all workers are about 12-14 hours a day. This study also demonstrates the double burden of work by women due to time spent on both market and non-market work.

Stipulations of Leave & Holidays 6.65 Another indicator of the quality of employment is the eligibility for paid leave. In 2004-05, less than 10 percent of the wage workers in the unorganized sector were entitled to paid leave. As compared to a negligible 1 percent of casual workers in the unorganized sector who enjoyed paid leave, regular workers in the unorganized sector are relatively better-off with 18 percent enjoying paid leave. At the other extreme, about threefifths of the wage workers in the organized sector were eligible for paid leave. Only about 15 percent and 27 percent of the unorganized wage workers and unorganized

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The Challenge of Employment in India

regular workers respectively in the organized sector were eligible for paid leave. This shows again that the informalisation process has generated a large segment of workers within the organized sector without minimum conditions of work. 6.66 Regulations provide for one day off from work per week with wages and oblige employers to provide workers with paid off on the occasion of certain holidays, including national holidays. Most workers in the unorganized sector do not enjoy such benefits. In our review, based on Labour Bureau (Labour Bureau 1979, 1995a) and other studies workers, did not get a weekly holiday and were also denied holidays with wages for festivals.

Physical Environment 6.67 The physical environment at work place is an important aspect of worker’s well-being. Better physical conditions such as space, lighting, temperature, hygienic facilities etc. are critical for enhancing the productivity of workers as well as providing some basic comforts and healthy living at the work place. 6.68 Studies on physical environment at work place in the unorganized sectors reveal the poor physical conditions. Cramped working space is noted in a number of studies on the informal sector. Although adequate ventilation is very important in certain industries such as chemicals, metallurgy, leather tanning, pottery, brickkilns, meat and fish processing, and manufacture of matches and fireworks, Labour Bureau surveys and other researchers have noted poor ventilation in work place of such industries. Problems of poor ventilation and lighting are exacerbated during night shifts which also put additional burden on workers in terms of finding transport to return home, especially for women workers. 6.69 Adequate lighting/illumination is a necessary condition to enhance the quality of work, both safety of the workers and quality in the production process. This is specifically so in some specific industries where the types of work involve adequate lighting, such as cutting operations done with the use of a sharp knife, weaving of carpets with intricate designs. In the unorganized sector, where a large part of the work is done on piece rates and

the workers end up paying penalty for mistakes, errors and bad quality of work due to inadequate illumination is a double punishment. Studies have found that either lighting is inadequate or insufficient in a range of industries including carpet weaving workshops, lock making, and in the diamond cutting industry. 6.70 Other important aspects of physical environment at the work place are the provision of facilities such as crèche and shelter for rest or recreation of workers. However, no study has found such facilities at the work place in the unorganized sector with the exception of beedi making and cashew nut processing in Kerala where workers have access to crèche and canteen. Rudimentary resting place was provided to some workers in stone quarrying and construction industry. However, the quality of these facilities was found to be poor (Labour Bureau 1979). The Labour Bureau surveys in several industries in the unorganized sector over the years have found that only about 3.5 percent of the workers in beedi making and between 2 and 3 percent of the workers in the power looms sector were provided with housing (Labour Bureau 1992b). 6.71 Housing and sanitation conditions are precarious in most of the industries in the unorganized sector. A large number of unorganized sector activities, especially in urban areas, are in clusters. Large numbers of workers in these enterprises also live in the surroundings of the cluster, where the sanitation facilities are extremely limited. Open sewage drainage systems, overflowing drains, flooding during monsoon etc. lead to unhygienic living and working conditions of workers. Due to limited access to toilet facilities in these slums, workers mostly use open space within the slum or public toilet facilities. For instance, in the leather accessories manufacture in Dharavi only about one percent of the enterprises and workers had access to toilet facilities within the premises. Toilet and wash facilities at the work site are also scarce in most of the industries in the unorganized sector. This is also true in industries employing large numbers of women.

Occupational Health & Hazardous Work 6.72 It is well-known that certain unorganized sector industries such as underground mines, ship breaking, fire works and match industry were dangerous and full of 144

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hazards. The workers in underground mines were at the risk of loosing limbs or lives due to fire, flooding and collapse of roofs, emission of toxic gases and the failure of ventilation systems in the underground mines (SNCL 2002). Loss of limbs and amputations occur most often when workers operate unguarded or inadequately safeguarded machines. Lack of awareness about safe work practices due to inadequate training is also not uncommon. 6.73 The workers sustain injuries in many industries in the unorganized sector. A study in the slaughter and meat processing industry in Delhi found that workers including child workers sustained high levels of injuries. Dharmalingam (1995) found that the brick-kiln workers in Tamil Nadu faced hazardous working conditions leading to cases of loss of limbs, particularly foot being cut by spades. To prevent work-related injuries, occupational safety measures and equipments are either absent in most of the hazardous unorganized sector industries or such facilities are non-functional when present. In addition, most such industries do not have the provision of official compensation for work-related injuries. 6.74 Many studies have reported occupational illness and diseases among workers in many industries in the unorganized sector. These include underground mines (high incidence of lung diseases such as tuberculosis and pneumonia), glass bangle industry (respiratory disorders and tuberculosis), textiles and carpet weaving industry (skin-related diseases); fish processing units in the export zones (falls, injuries, strained muscles, hernia, slip discs, permanent damage to the uterus of women workers, coughs and shivering bouts; hand block printing textiles clusters in Jaipur (skin-related allergy and hardened/dead/ numb skin); Brick-kiln industry (respiratory diseases, body ache and exhaustion among women and children) .

Socially Objectionable Conditions of Work

or

Extreme

6.75 In India, there is a segment of disadvantaged workers who perhaps constitute the bottom layer of the working class. These are the migrant workers, particularly the seasonal migrants, child labourers and bonded labourers. The number of such workers represents the poor quality of employment because the works they are

engaged in are considered socially objectionable. These workers are highly vulnerable on account of their lack of physical assets and human capabilities coupled with their initial conditions of extreme poverty and low social status. This results in their low bargaining power in the labour market that further reinforces their already vulnerable state and traps them into a vicious circle of poverty and deprivation. The conditions of work are often miserable, hours of work long, meagre wages, non-existent work security and a greater exploitation.

Migrant Workers 6.76 Lacking any skills and assets, migrant workers often tend to end up as farm labourers in rural areas and construction workers or rickshaw-pullers or street vendors in urban areas. Women from poor rural households often become domestic servants in urban areas. Such labourers in most cases are sourced by labour brokers/contractors. The migrant workers are largely in the unorganized sector, which is why they face exploitation at the hands of employers and middlemen who help them get employment in destinations away from their places of origin. 6.77 Temporary and short duration migrants need special attention because they face instability in employment and are extremely poor. They are engaged in agricultural sector, seasonal industries or in the urban sector as the self-employed. Some estimates suggest that the total number of seasonal migrants in India could be in the range of 30 million. 6.78 Migrant workers face adverse working conditions such as longer working hours, social isolation, lower wages and inadequate access to basic amenities. Migrant wage workers receive lower wages because of which they are being preferred by the employers as compared to their local counterparts. Statutory minimum wage rates are rarely observed. Wages for women migrant workers are lower than the male migrant workers. For instance, in the construction industry they are treated as assistants to their male counterparts and given unskilled manual worker’s wages. Further, payments are irregular and sometimes, are not made in time. Piece rates are prevalent as it provides greater flexibility to the employers.

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6.79 Migrant workers, in most cases, stay at the work site in temporary huts and shanties. Often the employers expect them to be available for work round the clock. Working hours are not fixed. Women migrant workers are even more insecure because of the odd working hours. They face exploitation in terms of adverse working conditions, lower wages and, at times, even sexual harassment. 6.80 Not only that the migrant workers face adverse working conditions, their living conditions are also often deplorable. They live in temporary hutments located at the work site as in the construction industry, or in slums, or even on pavements, stations and parks in the cities. There is no safe drinking water or hygienic sanitation. Temporary migrants are denied ration cards and hence their entitlement to the public distribution system. Over the years there has been massive poverty-induced migration of illiterate and unskilled workers into mega cities such as Mumbai, Kolkata, and Chennai, Delhi and Bangalore leading to frequent breakdowns of essential urban services like water, electricity, sewerage and transport. 6.81 The long working hours in hazardous environments, harsh working and living conditions increase health and occupational hazards of the migrant workers and their families. Due to their temporary status, workers, have limited or no access to public health and education facilities. As a consequence, their children’s educational prospects all but vanish. 6.82 In addition to lower wages, manual unskilled jobs and sexual harassment, women migrant workers face other difficulties such as lack of maternity benefits, lack of childcare facilities and the additional burden of domestic chores and child rearing. All these lead to grater insecurity for women migrant workers as compared to their male counterparts.

Child Labourers 6.83 The problem of child labourers is more complex and is intertwined with the twin issues of poverty and lack of access to quality school education. It is also not rare to find situations when a child worker is a migrant and bonded to the employer. The susceptibility of such

child workers to exploitation is the greatest. 6.84 According to NSSO results, there has been a decline in the incidence of child labour in India. For instance, the total number of child workers declined from 13.3 million in 1993-94 to 8.6 million in 2004-05. They constituted about 6.2 percent of children in the age group 5-14 years in 1993-94 and 3.4 percent in 2004-05. The majority of the child labourers are in the rural areas (7 million) where about two-thirds of the children were engaged in family enterprises as helpers and the remaining one-third were engaged as paid workers. In the urban areas, on the other hand , nearly half of the child labourers were wage workers. Two-thirds of the child workers were engaged in agriculture and about 17 percent were engaged in manufacturing. More girls than boys were engaged in agriculture and manufacturing. One-tenth of the boys were engaged in trade as compared to just 2 percent of girls. 6.85 About 11 percent of girl child workers are engaged in domestic duties in rural areas, collect water and firewood and prepare cow dung cakes for fuel. Other tasks performed by girl child workers in rural areas are husking paddy, grinding food grains and sewing. All these activities may keep the girl out of the school as well. Being kept out of school and helping the mother in work and domestic duties, would reduce her capacity to compete in the labour market in future. Her future is, thus, in jeopardy even from the age of 10 or sometimes even below. This is particularly true of the girls in rural areas. It is possible that majority of these girls also belong to the poor households and are being used by their families to maintain the subsistence incomes. 6.86 Given the rate of reduction in its incidence, it is quite possible that by 2015, child labour will decline to a negligible percentage of less than one or so. However, if we define child deprivation as the out-of-school children that comprise both workers and non-workers, the potential child labour pool still remains very high at 45.2 million (18 percent of children) in 2004-05. They constitute nearly 15 percent of boys and 21 percent of girls. While child labour is a major problem only in 9 states, child deprivation is more widespread in the country except in Kerala (3 percent), Tamil Nadu (5 per cent) and Himachal Pradesh (9 percent). Therefore, a 146

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progressive improvement in school enrolment will become the key to reducing child deprivation in the sense of children being out of the school. 6.87 The association between socio-economic deprivation and child labour has been long established in India and other countries. The 2004-05 NSSO results clearly suggest a negative association between per capita household expenditure and child labour/deprivation and a positive association between caste/religious status and child labour and deprivation. For instance, households with lowest per capita expenditure have the highest incidence of child labour and child deprivation. STs, followed by Muslims, SCs and Hindu OBCs have the higher incidence of child labour and child deprivation. The inherent problem, thus, lies not in dealing with child labour alone, but with the entire gamut of out-of-school children, which is a manifestation of not merely poverty or economic deprivation but also the extent and nature of educational facilities and its easy access to the socially weaker sections. 6.88 As regards conditions of work of child workers, they worked for more than 8 hours a day in various industries. School going children attended school for 6 hours and then spent another 4-6 hours in work. In fact, child workers worked as much as and as long as adult workers and received no wages (as apprentice) or a fraction of the adult wage. They faced inhuman and even hazardous working conditions. Child workers in the unorganized sector are, of course, the worst affected. They are most vulnerable as they do not have the bargaining power to demand their rights. The policy response, therefore, should be to eliminate all types of child labour in agriculture as well as in the unorganized nonagricultural sector enterprises, to focus on child-centred primary education of good quality, and to expand employment and livelihood opportunities for adult workers.

Bonded Labourers 6.89 Bonded labourers have no freedom to change their employment. Sometimes, the disadvantages of migration and bondage interact as in the case of migrant bonded labourers in construction sites, quarries and brickkilns. 147

6.90 Bonded labour refers to a long-term relationship between the employee and the employer, cemented through a loan, by custom or by force, which denies the employee various freedoms including freedom to choose his or her employer, to enter into a fresh contract with the same employer or to negotiate the terms and conditions of her/his contract. The bondage continues even to the next generation. Firm estimates of labour bondage are not available but the extent of bondage can be gauged from the fact that in a number of industries, a large proportion of workers suffer from “unfreedom” and are paid wages lower than the minimum wage (found by the Supreme Court as a key identifying characteristic of bondage). An overwhelming proportion (nearly 87 percent according a Ministry of Labour survey) of the bonded labourers belong to scheduled castes (SCs) and scheduled tribes (STs). 6.91 Bonded labourers are found mostly in agriculture but are increasingly predominant in several activities in the unorganized sector. Among the sub sectors, the incidence of bondage is probably the highest in quarries and open mines. Brick-kilns are another industry, which reportedly continues to have a sizeable incidence of bonded labour. Among industries for which recent evidence has accumulated are power looms, handlooms, rice mills, sericulture and silk weaving, woollen carpets, fish processing, and construction. Bonded labour, including children, has also been identified in the case of circus industry and domestic work. Incidence of bonded labour is also found to be relatively high among migrant workers, forest tribal populations and child workers. Overall, bonded labourers are from the lowest segment of migrant labourers and child labourers. 6.92 Due to social change, social movement and state interventions, the un-free status of labour in traditional agriculture and in some other sectors has changed positively. However, the incidence of bonded labour still remains high in some segments of the unorganized industry. Although official statistics have tended to underplay the incidence of bonded labour, it is a huge problem. 6.93 On the whole, migrant workers, child labourers and bonded labourers constitute a segment of the workers

The Challenge of Employment in India

in the unorganized sectors who are the most deprived and exploited. Given the fact that most of the bonded labourers belong to the SC and ST communities, this has the social dimension of vulnerability as well with poor quality employment.

Self-employed agriculture

Workers

in

Non-

6.94 The self-employed accounts for the majority of the work force (57 percent in 2004-05) followed by the casual workers (28 percent) and regular workers (15 percent). When we consider the unorganized sector as a whole, the share of self-employed is even much higher. There are 166 million and 92 million selfemployed in agriculture and non-agriculture respectively. In agriculture, the self-employed are the various categories of marginal, small and big farmers. In non-agriculture, majority of the self-employed are own account workers i.e., working as tiny enterprises often with the help of family labour or with one or two workers, although women “helpers” or “unpaid workers” predominate. The condition of the selfemployed in agriculture, especially the marginal and small farmers, is discussed by us later in this report (Chapter 10). 6.95 The characteristics of informal enterprises have been analysed by us in detail in our Report on Conditions of Work. In 1999-2000, Own Account Enterprises (OAEs) constituted about 87 percent of the informal enterprises with 73 percent of all workers engaged in them. The rural area has more concentration of both OAEs and workers engaged in them. On the contrary, there is a greater concentration of larger units in the urban areas, i.e., establishments with 2-5 hired workers or 6-9 hired workers. 6.96 Majority of the self-employed workers were in OAEs as owner operators or as family labour. The OAEs operate with low productive assets (approximately worth Re 39 thousand in rural areas and 70 thousand in urban areas), mostly self-owned and with low value-additions of barely Re 14000 and Rs 26100 per annum in rural and urban areas respectively in 1999-2000. This indicates the small scale operation and the consequent low returns of such low investments.

6.97 Overall, a large proportion of OAEs (with no hired workers) were engaged mainly in some form of survival operations rather than carrying on with a business activity in the proper sense of the term. Thus, very large proportions of the OAEs do not have sustainable livelihoods, particularly in the rural areas. The urban enterprises have a bigger scale of operation and also get higher returns on their investments. The family labour based enterprises are also likely to be self-exploiting their own and family labour. Hence, they need assistance from the state or other institutions for the promotion of their livelihoods through various means. 6.98 The results of the NSS on informal sector enterprises in 1999-2000 reveal that OAEs face several constraints. Nearly 64 percent of them reported that their units were stagnating, with not much difference across rural and urban areas or industry groups. Furthermore, 85 percent of OAEs were not registered under the Factories Act and were not incorporated. The OAEs in urban areas are relatively better-off in this respect, with 12 percent registered with the local bodies and 5 percent under the Shops and Establishments Act. The main problem reported was the limited access to credit followed by marketing and infrastructural constraints. Competition from large units was also an important problem faced by these tiny enterprises. Given the fact that a substantial proportion of these units are not registered, their ability to access credit remains rather limited. 6.99 Establishments with hired workers are betteroff than OAEs with no hired workers. The average value of fixed assets in the establishments with hired workers is in the range of Rs. 3 lakhs per enterprise, which is well above the average investment with OAEs of Rs. 39000 per enterprise. These establishments also have higher value of fixed assets. Gross value addition in these establishments at Rs. 39000 is nearly double that of OAEs. Establishments in the urban areas have distinctly higher value addition, just as we had observed in the case of OAEs. Enterprises that hire workers, especially those hiring between 6 and 9 workers, are somewhat better placed than the smaller ones. The fixed capital of the former is eight times higher than the latter. Even then their fixed capital estimated at Rs. 3 lakhs in 2000) 148

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is considerably lower than the threshold for defining a micro-enterprise (i.e., Rs. 25 lakhs) under the Micro, Small and Medium Enterprise Act of 2005. Given the high proportion of such enterprises in the small scale sector, this alone points to the need for concerted attention to this segment. 6.100 Establishments with hired workers also face constraints, although to a lesser extent than OAEs. In 1999-2000, nearly 50 percent of them reported that they were stagnating. As compared to the OAEs, a larger proportion of establishments (more than half ) were registered with some agency. In urban areas, 30 percent were registered with the local bodies and another 16 percent were registered under the Shops and Establishments Act. As in the case of OAEs, the problem of shortage of capital was faced by the establishments as well. In addition to competition from larger units, power related problems were also a major issue of concern for establishments. 6.101 Many others such as home workers are under the putting-out system whereby raw materials are supplied to them by agents or establishments who purchase the processed output. Most of the home workers are women. While women self-employed workers are concentrated overwhelmingly in manufacturing (60 percent), men are predominantly in trade (42 percent). Large proportion of workers in the manufacturing sector were engaged as home workers, mostly in the manufacture of tobacco products like beedi-rolling, textile products and wearing apparel. 6.102 Weak presence or even absence of organizational capital is a critical problem. Numerous tiny enterprises need some kind of associational umbrella so that they can demand better support systems, engage in creating common facilities, procurement of raw materials and marketing of products.

Conditions of Work of Self-employed Workers 6.103 Here, we present the key results of some of the case studies of specific industries reported in NCEUS (2007a). The first is the handloom weaving of cloth that continues to be the main source of livelihood of a large

number of families in the country – a little over 2.5 million by a census conducted in 1995-96. Since much of the handloom industry is home-based, a major constraint was the poor and traditional premises in which the looms were set up. The thatched roof, if not repaired regularly, resulted in leakage. The water drops stained the cloth and rendered large losses. The orders for such stained products were often cancelled. The weavers then tried to sell their products on their own leading to large losses. 6.104 An important segment of the self-employed workers are the street vendors/hawkers in India who deal with petty trade. The number of street vendors ranges from 1.5 -2 lakhs in metropolis like Mumbai and Kolkata to 30000 in small cities like Bhubaneswar. The share of women street vendors is the highest in Imphal. The SCs and other backward castes dominate the trade. Approximately 25-30 percent of the street vendors in the cities are illiterates and another 20-24 percent has only primary education. The street vendors interact with different segments of urban population and have a specific role in urban society and space. However, lack of recognition of their role culminates in a multitude of problems faced by them: obtaining license, insecurity of earnings, insecurity of place for hawking, gratifying officers and musclemen, constant eviction threat, fines and harassment by traffic policemen. 6.105 One of the most neglected and vulnerable segments of workers in the land transport sector are the Rickshaw pullers. They are primarily migrants, landless, less literate and unskilled. In addition to a large sum of money required to purchase a rickshaw, rickshaw pullers incur costs due to license and bribes to police and municipal authorities. Exploitation by public authorities of the rickshaw pullers is mainly due to the lack of awareness of laws that protect them. Rickshaw pullers have to deal with the rickshaw owners as well on rickshaw’s hiring charges. Most of the rickshaw pullers stay in jhuggies or unauthorized colonies, owner’s workshops or below the staircases, on footpaths, under hanging balconies on the roadside, in the rickshaws or even in the open space. The stressful life with no rest day coupled with unhygienic living conditions and limited food results in poor health of most workers. Diseases like backache, tuberculosis, asthma, hernia, weak eyesight,

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and underweight are common. They have no medical insurance or access to health care facilities, forcing them to consult quacks when ill. 6.106 A relatively large proportion of the vulnerable sections of the workforce such as unpaid family workers, child workers and women workers are likely to be involved in home-based work, most often as home workers. They often do not have adequate work throughout the year. Work conditions can be exploitative if there are few alternative opportunities in the area or if work is available only to bonded labour. Home workers have little or no access to markets and the final consumer. Contractors/middlemen prefer to keep workers isolated. Lack of unionization can also be an important source of the vulnerability of the home workers. The common diseases that beedi-workers suffered were asthma, tuberculosis, spondilitis and back-strain.

Social Security 6.107 We have divided the social security problems of workers in the unorganized sector into two categories. 6.108 The first arises out of deficiency or capability deprivation in terms of adequate employment, low earnings, poor health and educational opportunities, among others, that are related to the generalized deprivation of the poorer sections of the population. 6.109 The second category arises out of adversity in the sense of an absence of adequate fallback mechanism (safety net/social protection) to meet contingencies such as ill-health, accident, death and old age. We have shown that less than six percent of the unorganised sector workers receive social security. The fact that majority of the socially depressed communities find themselves in the unorganized sector imparts a certain social dimension to vulnerability due to lack of social security. 6.110 Although the focus of this Commission has been on protective social security for workers in the unorganized sector, we recognise the fundamental importance of promotional social security as part of an overall and integrated social policy. The promotional programmes include the Integrated Child Development Scheme (ICDS), the Public Distribution System (PDS), the MidDay Meal Scheme, Indira Awas Yojana (IAY), and the

most recent and significant one, the National Rural Employment Guarantee Scheme(NREGS). 6.111 Within the realm of protective social security, our special concerns have been the vulnerability of workers due to stoppage of income (due to untimely demise, accident or retirement), ill-health, and protection of women workers during maternity. 6.112 Health security is a prime concern for the unorganized sector workers. Many studies in India have shown that reduced public health expenditure can have detrimental effect on the workers and their families. Illnesses requiring hospitalization could be catastrophic for poor workers. Out-of-pocket expenditure constitutes over three-quarters of the total health expenditure for all Indians. On average, a person in the poorest quintile is much less likely to receive treatment than those in the richest quintile, and women are even more likely to forego treatment. The health-related vulnerabilities mentioned above can be compounded, especially for the poor households, due to the fact that there has been a steep rise in the cost of treatment for healthcare in India in recent years. 6.113 Maternity benefit is another important social security concern for the well-being of mother and the child and for the continuity of employment for women in the unorganized sector. Given the high levels of maternal mortality and morbidity in India, access to safe motherhood for poor working women in the unorganized sector is of critical importance. A major concern expressed by the poor women working in the unorganized sector is also the loss of income during advanced periods of maternity and immediately after childbirth.

Constraints on Self-employed Workers & Informal Enterprises 6.114 Paradoxically, the precarious nature of informal enterprises is, in part, due to the restrictive nature of the regulatory regimes under which they have to operate, and partly due to their small size. In our report on Conditions of Work, we have highlighted the negative impact of different regulatory regimes and ill-conceived development policies (such as in the sphere of urban development) on informal sector enterprises. Some of the

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other principal constraints faced by these enterprises relate to the lack of entrepreneurial capacity, skills, access to capital and credit; raw materials and markets and technology. 6.115 The conclusions from the large numbers of case studies, also substantiated by macro surveys and macro data, confirm a very low penetration of formal credit among informal sector units, low overall access to credit, and a high unmet credit need among these units (NCEUS 2007b). 6.116 Handloom weaving of cloth is the lowest in the hierarchy of technologies of textile manufacturing. Our studies have established a number of reasons why handloom weavers continue to be trapped in a vicious cycle of poverty leading to a high dependence on informal loans both for working capital as well as consumption. Two-thirds of the respondents in the survey of weavers in UP reported that they had taken loans, mainly from the co-operative society and also from friends and relatives. The average loan amount was about Rs. 23000. Number of people taking loan from banks was negligible. There are no special provisions for weavers to access loans from the banks. Capital and credit were found to be the single largest problem in surveys of food processing units. Limited access to capital and credit was also reported in the informal rice milling units. 6.117 In petty trade in India, the street vender’s earnings are very low. The average daily income of male vendor is Rs. 70 in most cities and women vendors earn considerably less – Rs. 40 per day. Most of the vendors report having borrowed from moneylenders who charge exorbitant rates, sometimes, the interest rate exceeds 100-125 percent or even 10 percent per day. 6.118 The home workers earn very little, are paid on piece rate, at very low rates, and are often dependent on the middlemen for wages and work. Women home workers in the beedi, agarbatti and zardoshi work receive very low wages and report a high level of indebtedness. 6.119 Competition from larger units, access to markets and raw materials are the other major problems faced by the informal sector units.

6.120 In the handloom sector, the problems of raw material supply and marketing were closely linked. Over the last decade the weavers have become highly dependent on traders and the co-operative societies for meeting their raw material demand and marketing their products. In the process, the weavers were reduced to a sort of puttingout system. As they were highly dependent on the trader or co-operative society, they were unable to bargain or get a good price for their efforts. 6.121 In addition to inadequate access to capital and credit, other most common problems reported by food processing units were marketing and securing raw materials. 6.122 The home workers in beedi-rolling face uneven quality and availability of raw material. This results in low incomes and also greater rejection of the output that affected their income. Rejection of beedis on the ground of poor quality and providing less than the required amount of raw material were methods used to reduce the wage payments and keep the wages below the Minimum Wages. 6.123 Small improvements in technology can go a long way in improving the condition of the informal sector enterprises and raising the level of living of their workers. Majority of the weavers in our study still used the traditional pit-looms rather than the frame looms. The weavers reported some changes in technology in terms of new designs and products including the quality of the colour dyes, but only half of the respondents had adopted these changes. The reason cited for non-use of new methods was that the increased returns to these investments were not in proportion to increase in costs. 6.124 In the studies of the rice milling industry in Punjab and West Bengal reviewed by us, hullers, minishellers and husking mills in the informal sector used older technologies with greater wastage of paddy and lower value by-products, compared to the rice mills in the formal sectors. 6.125 The plight of rickshaw pullers is accentuated by the low technology used in the design of the rickshaw. The basic bolted-on unit is inflexible and misaligned making the task of rickshaw pulling inefficient and extra 151

The Challenge of Employment in India

the country. Following the submission of the report, a draft bill was introduced by the Government in Parliament that was subjected to a detailed scrutiny by a Parliamentary Standing Committee which submitted a report in November 2007 endorsing not only the recommendations of this Commission but also going beyond it by including ‘unpaid family workers’ and a shortened implementation time, among others (Lok Sabha Secretariat 2007). However, the final bill passed by the Parliament retained most, if not all, of the features of the earlier draft. This Act, Social Security for Unorganised Workers Act of 2008 has fallen short of the many salient features of the above two reports. It basically provides a framework for the Government to come up with schemes as and when it deems appropriate. The Act has been followed by the introduction of two schemes, one limited to the ‘households below poverty line’ in the form of a social insurance against sickness and maternity and another limited to ‘rural landless households’ in the form of a life insurance. The Act does not provide for a ‘national minimum social security’ for all unorganised (informal) workers. It also does not provide for an empowered body at the national and state levels nor a dedicated fund for financing the proposed national minimum social security. The economics of inclusion is yet to catch up with the politics of inclusion. The disconnect between the dominance of neoliberal orthodoxy in economic policy and the yearning of the vast majority of the working population for a life of work with dignity and security is getting increasingly glaring in a fast growing India.

tedious. This has evident negative consequences for puller’s health. In the subsequent chapters we focus on these issues and make appropriate recommendations.

The Commission’s Strategy of ‘Levelling Up’ 6.126 A strategy for reducing the share of the informal economy in the overall economy would be an eminently appealing idea to this Commission. This however postulates that the formal segment of the economy will be in a position to absorb into formal employment the informal workers at a rate that would exceed their rate of growth by a wide margin. Such a classical process of structural transformation is nowhere in the horizon for a variety of reasons including the structural and socioeconomic rigidities of the Indian economy. While we would like to see the Government adopting a more employment-friendly policy for the formal sector of the economy, the ground reality in India is that the informal economy is too large and structurally too weak to be taken care of by such a policy. We have therefore recommended a strategy of ‘levelling up’ the informal economy by addressing what we call the foundational issues such as the basic developmental problems that would place a priority on enhancing human capabilities and basic socioeconomic security. Based on such an approach we have advocated a series of promotional policies to strengthen the working conditions, enterprise capacity and so on resulting in increasing the productivity along with providing social security and decent conditions of work. These are:

(i)

Creation of a ‘social floor’ consisting of providing a national minimum social security, enforcing a national floor level wage called National Minimum Wage below which no trade/areaspecific minimum wage should be fixed and a stipulation of minimum conditions of work. These have been elaborated in our Report on Social Security for Unorganised Workers and Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector (NCEUS 2006, 2007a).

(ii)

On social security, the NCEUS (2006 & 2007a) had made a comprehensive proposal to introduce a National Minimum Social Security to all the unorganised or informal workers in 152

Skill formation for the informal workers is a critical capability to enhance their productivity and thereby income. This is applicable to both the wage workers as well as those self-employed because of its central role in reducing the gap in productivity between the formal and informal sector. This is also an active labour market policy that would contribute to the transformation of the coming demographic burden into a demographic dividend. This issue has been discussed in chapter 8 with detailed analysis given in a

Employment Generation & its Quality: Looking through the Lens of Formality & Informality

Public employment programme is a cushion against the deficiencies in employment faced by the working poor especially the casual wage workers. It is quite possible that some sections of the poor, now out of the labour for a variety of socio-economic reasons, might participate in such employment programmes given the dignity and assurance of fair wages attached to such programmes. From a macro economic point of view, we view it as a means to enhance the effective demand of a large segment of the population who cannot now articulate such demand and hence remain poor and vulnerable. It is in this light that we view and give our recommendations on strengthening the National Rural Employment Programme meant for the rural areas, discussed in Chapter 9. There we also strongly advocate the introduction of a similar programme in the urban areas taking into account the characteristics of the urban informal workers and their conditions of poverty and vulnerability as well as to connect it up with a programme for urban renewal.

(iv)

Agricultural regeneration through focus on marginal and small farmers is another area that we have discussed in Chapter 10 on which there is a detailed Report on A Special Programme for Marginal and Small Farmers (NCEUS 2008b). The Commission is aware of the detailed work and recommendation of the National Commission on Farmers and the large number of reports and studies including scholarly analysis carried out by an array of distinguished scholars. From an informal economy perspective, what this Commission has done is to advocate a strategy for the large number of marginal and small farmers who constitute 84 percent of the total farmers in the country contributing to a little more than half of the agricultural output. This group approach is something that this Commission feels necessary, if not sufficient, to bring together the number of promotional and protective programmes available to the farming community.

(v)

Development of micro enterprises in the nonfarm sector is the last, but certainly not the least, in our strategy of levelling up the informal economy. The Commission’s estimates suggest that more than 141 million workers are employed in this sector, contributing to 30 percent of the GDP. Yet it would not be an exaggeration to say that it is, by and large, a neglected sector. Credit to the sector has been miniscule and there is very little access to other complimentary factors such as technology, marketing and raw materials. Although there are a number of sector or trade-specific promotional organisations (KVIC, Coir Board, Handloom Board, etc.), their cumulative impact seems to be minimal when we compare the outcomes in terms of productivity, earnings and conditions of work in this sector. Access to credit has been a major problem area which this Commission examined in detail and put forward certain recommendations including the creation of a development agency for refinancing and other developmental activities. These two issues are discussed in detail in our Reports on Financing of Enterprises and Creation of a National Fund for the Unorganised Sector (NCEUS 2007b) and under the consideration of the Government for the past 20 months. We have thought it fit to recapture the arguments in Chapter 12 and emphasize the need to examine the recommendations on a priority basis. In fact Chapters 11-13 examine the overall scenario of the micro enterprise sector to underline the importance of ensuring access to not only credit but also technology, marketing and raw materials.

(vi)

Development of clusters and growth poles is the logical culmination of our discussion on micro enterprises. As in the case of marginal and small farmers, the employers in the micro enterprises also cannot access and utilise effectively a number of programmes and schemes. They also need to be approached within the framework of a group to overcome their small size, indivisibilities in investment and a host of common issues. Fortunately, there are a large number of clusters of industries/businesses that

153

The Challenge of Employment in India

have evolved over a long period of time in this country. The ongoing Cluster Development Programme is a welcome initiative but needs to be strengthened in terms of an equal emphasis on social and human capability dimensions. It also needs to be enlarged to cover a larger number. These clusters, wherever they are concentrated in a given geographical space, also offers scope for developing them into what we call Growth Poles. Given the employment generating capacity of these enterprises, their collective development will also contribute to enhancing productivity and output in the economy. This

could then be a foundation for building up decent conditions of work and ensuring fair wages and social security. 6.127 Before we discuss these issues, the Commission considered it appropriate to examine the oft-repeated argument about labour market rigidity (usually referring to a provision in the Industrial Disputes Act and to eliminate inspection on labour issues) as a stumbling block to the creation of jobs in the formal sector. We therefore discuss this in the next chapter before proceeding to discussing our strategy and recommendations in the subsequent chapters.

154

Employment Generation & its Quality: Looking through the Lens of Formality & Informality

Appendix 6.1: Methodology of Employment Projections The technique generally used for projecting employment impact of GDP growth is to use employment elasticities estimated on the basis of past data. The estimates of employment and GDP by each industry group viz. Agriculture, Industry and Services are available for the years 1993-94 and 2004-05. It is, however, considered necessary to project the employment generation by formal and informal sectors and also to get the break-up of the projections by formal and informal work status. Even though the employment shares of formal and informal workers are available for the years 1999-2000 and 200405, similar estimates for 1993-94 are not available. The first step in the employment projection was, therefore, to get the break-up of industry-wise estimates for formal and informal sectors both for GDP and employment in the year 1993-94. This was done by projecting backward the average annual changes in the shares of formal and informal sectors between 1999-2000 and 2004-05 in each industry group. In the case of agriculture, the procedure can be expressed as follows by using mathematical notation. f

f

SA 1993-94 = SA 1999-00 - 6*

f

f

where SA 1993-94 is the share of formal sector agriculture in the year 1993-94 f

SA 1999-00 is the share of formal sector agriculture in the year 1999-00 f

Δ is the average annual change in the share of formal sector between 1999-2000 and 2004-05 SA

if 1993-94

f

= 1 - SA 1993-94

if

where SA 1993-94 is the share of informal sector agriculture in the year 1993-94 By using the shares estimated both for GDP and workers in the year 1993-94, the estimates for the industry groups were divided between formal and informal sectors. These were compared with the estimates for 2004-05, and employment elasticities were computed by dividing the

growth rate of workers with the growth rates of GDP for each sector in each industry group. The GDP estimates for 2006-07 and 2007-08 were also divided by projecting forward the shares of formal and informal sectors. For the years 2011-12 and 2016-17, the GDP projections based on different growth rates were divided between industry groups and formal and informal sectors by using the average annual change in shares between 2004-05 and 2007-08, which was a high growth period of Indian economy. However, in the case of agriculture, the growth rate in GDP between 2006-07 and 2011-12 was assumed to continue till 2016-17 and the shares of industry & services were accordingly adjusted. The GDP estimates for the years 2005-06 onwards at 1999-2000 prices were further adjusted to account for productivity growth. It was done by reducing the addition to GDP in each year over the previous year by using productivity growth rates between 1993-94 and 200405 in each industry and sector. The reduced GDP addition thus projected were added to the previous year GDP to obtain GDP projections discounted for productivity growth. The growth rates of GDP by industry and sector were then worked out by using the above projections. The growth rates of employment were then worked out by multiplying the GDP growth rates with employment elasticities. These growth rates were applied to employment estimates for 2004-05 to obtain industrywise and sector-wise projections of employment for subsequent years. The employment projections obtained for formal and informal sectors in each industry group were further divided into formal and informal workers by using the average annual percentage changes in shares between 1999-2000 and 2004-05. The projected percentage shares of formal and informal sector as well as formal and informal workers based on UPSS estimates were applied to MCWS estimates for obtaining MCWS employment projections.

Table 6.9.2: Percentage Distribution of Formal/Informal Workers by Major Economic Activity in 1999-2000 and 2004-05 1999-2000

2004-05

Informal Sector

Formal Sector

Total

Informal Sector

Formal Sector

Total

Informal workers

67.85

5.45

Agriculture 59.21

Formal workers

0.12

4.68

0.75

64.02

5.13

55.94

0.01

4.51

0.62

Total

67.97

10.11

59.96 Industry

64.03

9.64

56.56

Informal workers

12.81

22.10

14.10

15.11

26.71

16.71

Formal workers

0.14

14.83

Total

12.95

36.93

2.17

0.13

13.86

2.01

16.27

15.24

40.56

18.72

Informal workers

18.81

14.45

20.50

14.37

19.66

Formal workers

0.27

38.51

Total

19.08

52.96

5.57

0.23

35.42

5.06

23.77 Total

20.73

49.80

24.72

Informal workers

99.48

41.97

91.52

Formal workers

0.52

58.03

8.49

99.64

46.20

92.31

0.36

53.78

7.69

100.00

100.00

100.00

100.00

100.00

100.00

Services

Total

18.21

Source: ibid. 167

The Challenge of Employment in India

7

Labour Law Reforms : Beyond a Narrow Agenda Introduction 7.1 The labour market reform has occupied the political centre stage in the country for quite some time now. The Commission is of the view that the debate on labour reforms in India has tended to focus narrowly on the contentious issue of entry and exit policy only. It has been contended that an excessively restrictive regulatory regime in respect of employment of labour has tended to slacken the employment growth in Indian industries in general and in the organised or formal sector in particular. It is also seen to be responsible for the increase in employment share of the informal or unorganised sector where most labour laws do not apply. 7.2 An unfortunate fallout of this extreme preoccupation with entry and exit policy has been that it has pushed into the background a number of other equally important reforms in this area which are much less controversial and which could have been promoted by building consensus among the various stakeholders. These include issues such as simplification, rationalisation and consolidation of laws, improving their implementation, and reforms related to the dispute settlement mechanism. 7.3 A major issue in the area of labour reforms is how to ensure minimum conditions of decent work and livelihood in the unorganised or informal sector of the economy. The limited applicability of important laws and the application 168

of number filters have led to the emergence of a dual labour market in India with the attendant implication of the overwhelmingly larger sections of the unorganised/ informal sector labour being deprived of protection from laws in many spheres. 7.4 What the Commission focuses here is to examine the relationship between labour laws and employment. We do so after dealing with the evolution, scope and coverage of labour laws. Then we identify the major issues in labour reforms and after a careful examination of their pros and cons, make a set of recommendations, which in our view, strike a proper balance between the requirement of economic growth and the need to ensure decent conditions of work and living standards as well as minimum social protection.

Evolution of Labour Laws in India 7.5 Though the emergence of labour regulations in India can be traced back to the period of British rule in India, most of the existing laws governing various aspects of work were passed in quick succession of each other after Independence. There was a complete change in the approach to labour legislation after the attainment of Independence in 1947, as the ideas of social justice and welfare state as enshrined in the Constitution of India became the guiding principles for the formulation of labour regulations. The Constitution made specific mention of the duties that the state owes to labour for their social regeneration and economic uplift. For example,

Labour Law Reforms : Beyond a Narrow Agenda

one of the significant duties which have a direct bearing on social security legislation is to make effective provision for securing public assistance in the case of unemployment, old age sickness, disablement and other cases of undeserved want (Papola et. al. 2007). 7.6 It was considered necessary that in an independent democratic country, the employers’ rights to hire, dismiss and alter conditions of employment were subjected to regulation so as to ensure a fair deal to workers. Accordingly, the Industrial Disputes Act enacted in 1947 laid down procedures and conditions for layoffs, retrenchment and closure and for creation, maintenance and promotion of industrial peace in industrial establishments. This Act was later amended in 1976 and also in 1982 seemingly to give progressively greater protection to workers. The Factories Act 1948, which replaced the one enacted in 1881, aims at regulating the conditions of work in manufacturing establishments and to ensure adequate safety, sanitary, health and welfare measures, hours of work, leave with wages and weekly off for workers employed in ‘factories’ defined as establishments employing 10 or more workers using power and above 20 workers without using power. Similarly, the Minimum Wages Act 1948 is the most important legislation that was expected to help unorganised or informal workers survive despite the lack of bargaining power. The minimum wages for scheduled employment are to be fixed and periodically revised by the Central and state governments in their respective spheres. 7.7 The Industrial Employment (Standing Orders) Act 1946 is another legislation regulating the conditions of recruitment, discharge and disciplinary action applicable to factories employing 100 or more workers. It requires the employers to classify workers into different categories as permanent, temporary, probationers, casual, apprentices and substitutes. The Contract Labour (Regulation and Abolition) Act 1970 regulates the employment of contract labour and prohibits its use under certain circumstances. It applies to all establishments and contractors who currently or in the preceding year employed at least 20 contract workers. The idea behind this Act is to prevent denial of job security in cases where it is feasible and of social security where it is a legitimate legal entitlement. In the sphere of social security, Employees State Insurance Act of 1948 provides for certain social security benefits like medical, sickness,

maternity and injury to workmen employed in or in connection with the work of non-seasonal factories employing 20 or more workers. Medical benefits are also provided to retired insured persons and his/her spouse. Besides the above major laws there are several others that have been enacted for improving the conditions of employment and protecting the overall welfare of industrial workers after Independence. 7.8 The Commission recognizes that even though the protection of labour has been the primary motivation to introduce various measures of labour regulation, there is an implicit assumption that they are good for industry as well. There seemed to be a clear recognition and understanding that humane treatment, welfare, well-being and security make the work force more efficient and productive and it is, therefore, in the interest of the employers to provide good working conditions, social security against the risks at work and in life and an assurance that a worker will not be removed from job unfairly or without adequate notice and compensation. It is also obviously in the interest of both the workers and the industry to have industrial peace, and, therefore, a mechanism to redress grievances and settlement of disputes should be welcome to both. Thus, regulation of different aspects of employment, conditions of work, welfare, social security, job security and industrial relations is deemed to be part of a social contract and generally accepted and honoured both by workers and employers.

Important Labour Regulations & Their Coverage 7.9 Labour is a concurrent subject in the Constitution of India, on which both the Centre and the states can legislate in their respective spheres. As per Annual Report (2007-08) of the Ministry of Labour & Employment there are 43 labour laws in the central sphere. The focus of our discussion here is on labour regulations in the central sphere. 7.10 Indian labour regulations can be broadly grouped into four broad areas based on the aspects of employment covered by them: conditions of work, wages and remuneration, employment security and industrial relations and social security and welfare of workers. This section looks specifically at the applicability and coverage of the following 10 important labour regulations in Indian industry.

7.11 The Commission finds that different labour regulations have varying coverage in terms of the sectors or industries and categories of workers. It is therefore important to have an idea of the effectiveness of the coverage of important labour laws. A recent exercise on this important issue relates to the year 1999 (Pais 2007). The study is based on the NSSO data on EmploymentUnemployment situation and the annual returns on implementation of different labour legislation compiled by the Labour Bureau. The details of the methodology used and important findings of the study are given in the Appendix 7.1. to this chapter. The Commission notes here that the most stringent provisions of the Industrial Disputes Act, Chapter VB, are applicable to only about 1.4 per cent of the total work force or 3 per cent of the hired workforce. As per the study, if we exclude the Employees Provident Fund Act, the effectiveness of coverage is highest in the case of the Employees State Insurance Act (87.5 per cent) followed by the Factories Act at 73.5 per cent. The Shops and Establishments Act has an effective coverage of 44.7 per cent. Thus, if we take the effectiveness of coverage of different labour regulations into consideration, the actual coverage of the labour regulations in India is very small: the laws themselves apply only to a small proportion of workforce and they are actually implemented in the case of even smaller segments.

Relation between Labour Employment Generation

Laws

&

7.12 The case for labour reforms towards greater flexibility is sought to be supported, among others, by the ex ante adverse effects of existing ‘inflexibility’ on employment. It is generally argued not only by the industry but also by some economists (e.g. Fallon and Lucas 1991, Ahluwalia 1992, Besley and Burgess 2004) that the organised sector employment in the country has not grown primarily because of the labour legislation. In other words the ‘inflexibility’ arising from labour legislation prompts entrepreneurs to decide in favour of capitalintensive technologies. Implicit in this argument are the following premises: One, a technology, which was more labour intensive than the one adopted, was available. Two, this technology was more efficient in so far as it produced the output at a lower unit cost. Three, yet a decision was taken to use a capital-intensive technology because of the apprehension that the workers once hired cannot be fired, even if found necessary in future, because of the highly restrictive labour legislation. A faster growth of employment in the unorganised or informal sector is often referred to as an evidence of the employers’ unwillingness to expand employment in large-sized factories in which the protective labour laws are applicable and instead farm out work to smaller units. 7.13 It is important to examine this line of argument on logical as well as empirical bases. Primarily, it is doubtful whether similarly efficient technological options using more or less labour per unit of output are actually available in the case of any significant number of production lines. Many economists now believe that most often the choices are between products rather than techniques of production. Second, even when such technologies are available it is further doubtful if the cost-differences between them are only marginal. If the differences are significant, choice in favour of a different technique (which in the present case would be a capital intensive one) would not be taken at all irrespective of any extraneous factor. For, the cost of such a decision would be too high for any prudent entrepreneur. In fact, it appears that the industry is taking a rational decision in opting for technological change on the basis of their own assessment of the market trends in demand and given factor price relativities; and, argument concerning labour legislation is only a lobbying point towards further

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Labour Law Reforms : Beyond a Narrow Agenda

deregulation to permit greater flexibility in labour use with a view to solely reducing the labour cost. 7.14 The contention that the employers do not hire because they cannot retrench and ‘exit’ due to labour legislation and union pressure has limited validity in the face of the experience in many industries where the workforce in organised sector has been drastically reduced in a short period reflecting large scale retrenchments and

closures, despite the lack of an “easy exit” in law. Large decline in the workforce of textile mills in different centres, such as Ahmedabad and Kanpur during 1980’s has been documented by earlier studies (e.g. Papola 1994). Similar decline in textiles, basic metals and paper products is observed, during the 1990’s and in more recent years (Table 7.1). Several industries, on the other hand, expanded employment despite the ‘restrictive’ labour laws (Kannan and Raveendran 2009). Employment in the

Source: NSSO Survey on Employment and Unemployment, (various years); and Annual Survey of Industries, various years. 171

The Challenge of Employment in India

organised segment of wearing apparel, dressing and dyeing of fur grew at a rate of almost 10.3 per cent per annum during 1983-2005. It grew at over 3.6 per cent in leather products and 3.5 per cent in rubber and plastic products. It appears that labour laws were not found a reason for not increasing employment in expanding industries nor a hurdle in reducing employment in others (Ghose 1994, Goldar 2002). Decline and increase in employment has, in fact, been found to have taken place primarily on considerations of market and technology (Papola 1994, 2008, Kannan and Raveendran 2009). The real cause of slowdown or decline in employment growth in organised manufacturing, thus, seems to lie in market conditions for products of individual industries, and not in restrictive labour laws. 7.15 A faster growth rate of employment in the informal or unorganised segment of manufacturing is often cited as an evidence of the discouraging effect of labour

legislation on expanding employment in the formal or organised sector. There is no doubt that employment has grown faster in the informal segment and its share has sharply increased over the years. Informal sector has always accounted for most of the manufacturing employment: share of organised sector in employment was 22.2 per cent in 1983-84. It declined to 18.5 per cent in 1999-2000 and further to 15.0 per cent in 200405 (Table 7.2). Two points need to be noted in this regard. First, a significant part of the decline in the share of the organised sector, and therefore, increase in that of the unorganised sector, has occurred due to a large decline in the employment in public sector, from 18.52 lakhs in 1991 to 11.30 lakhs in 2005. Private sector employment was 44.81 lakhs in 1991 and rose to a maximum of 52.39 lakhs in 1997, but declined continuously since then to reach a figure of 44.89 lakhs in 2005, a marginally higher figure than 1991. Obviously public sector reduced its

employment not out of the fear of labour laws, but primarily for reducing excess work force through privatisation and measures like VRS. 7.16 Second, growth of employment in any product line seems to be primarily influenced by industry specific factors and is found to operate equally in the organised and unorganised segments. It appears to have very little to do with labour laws which are applicable across industry groups. Thus, employment growth, when taking place, is found to occur in both the segments (Table 7.1). And so is the case with decline in employment. Where employment growth has been high, it has been so in both segments of industry, or even higher in organised than in unorganised. For example, in wearing apparel industry employment growth between 1983 and 200405 has been high at 4.11 percent per annum, employment in its organised segment has grown at over 10 percent per annum. Corresponding figures for manufacturing of furniture is 3.97 and 6.29 and leather products 3.55 and 3.62 for the same period. In most of the industry groups the growth rate of employment in total manufacturing is higher than in the organised sector. In some cases like textile, wood products, publishing, basic metal, electrical machinery, medical precision and other transport the growth rate in organised sector is negative while the total manufacturing employment is positive. Only in case of coke, refined petroleum products the growth rate is positive in the organised sector and negative in total manufacturing sector. 7.17 This pattern of employment growth in organised and unorganised segments of different industry groups suggests that it is the technological conditions of production that determine the extent to which employment will grow in one or the other segment. In industries which use intermediate products as inputs and, therefore, different stages of production can be carried out in different premises and locations, growth of output may take place more often through employment in the unorganised sector, as that would be more economical due to lower overhead and fixed costs. That seems to be happening in transport equipments, machinery, paper and wood products to a large extent. At the same time, in fast growing industries, even when it is possible and economical to use unorganised units for production,

organised employment also needs to grow possibly to cater to the requirements of large scale management, standardization, quality control and marketing. Fast overall growth has been accompanied by very high employment growth in the organised and moderate employment growth in the unorganised sector in textile products. And leather products and metal products seem to require growth of employment both in organised and unorganised segments for their overall output growth. 7.18 Thus, there seems little to substantiate the contention that the deceleration in employment growth and decline in employment elasticity in the organised industry has been the result of the highly protective labour legislation. Most segments of industry seem to have become inevitably more capital intensive in the wake of modernization and emergence of high technology segments. Entrepreneurs seem to resort to rational choices in technology in response to the demand in the domestic and international markets. The trend is likely to continue and even may accelerate with increasing globalization of the economy, as the compulsions of international competition are likely to further reduce the employment intensity, partially because of the need for cost reduction, but mostly for the reason of improving the quality of the products. Also, production may increasingly shift to the small enterprises in the unorganised sector, in many lines of production where technology allows separation of processes and stages of production. Thus, it is the rate of growth and technology rather than factors such as labour regulation that will determine the growth and structure of employment in manufacturing. Deregulation of employment conditions ipso facto is unlikely to increase the rate of employment growth, nor the share of the organised sector.

Major Issues in Labour Law Reforms 7.19 Yet, the Commission realises that no one can seriously dispute the need to change the system of labour regulation in Indian industry. These changes are necessary to adjust in the new competitive milieu that globalisation and liberalisation have imposed on local economies. There is certainly the need for a new legal framework that is attuned to the transformation in industrial relations that we are witnessing at the wake of the new phase in the 173

The Challenge of Employment in India

internationalisation of production and distribution with concomitant changes in the productive forces technological and corporate structural changes, and changes in the character and composition of entrepreneurial and working classes. However, legal intervention in the name of adjustment to the ‘facts of life’ should not tantamount to the legitimisation of a total denial of the basic human and labour rights in the name of competitiveness; law must also help change the ugly facts of life for the working classes for the better. Further, the existing legal regulatory framework has historically supported labour market segmentation and dualism, leaving an immense majority of the working class unprotected. The growing informalisation and contractualisation of the work process would eventually deepen this dualism, if the framework is not properly amended, and also aimed “at reducing dualism in the regulatory regime” (Papola 2007). 7.20 In the view of this Commission, the major areas where labour law reforms are required are briefly outlined in the following sections

Multiple & Parallel Legislations 7.21 A repeated comment on the labour regulations in India is that there are far too many labour laws. In fact, there are too many laws for too few in the organised sector and too few for too many in the unorganised sector. Such multiplicity of labour laws has emerged because each piece of legislation was enacted as and when the need for the regulation of some segment or an aspect of the labour market arose. An integrated view does not appear to have been taken. As each piece of legislation was drafted independently of others (often copied from similar legislation in other countries), not only did the labour legislation proliferate but it also led to various definitions, often contradictory, of the same terms. Hence not to speak of the small employers, but even the relatively bigger ones and their workers find it tough and costly to find their way through the maze of labour legislation in India. 7.22 Many laws, in their zeal to provide for every conceivable aspect of the covered subject, tend to make so detailed provisions that they become difficult to implement and tend to be anachronistic because of technological and other changes at the workplace.

7.23 In India’s federal constitution, labour related laws can be enacted both by the Central as well as the state governments, as it is a subject placed in the concurrent list of the constitution. Even where a Central law has ‘occupied the field of legislation’, flexibility and deference to federal concerns have been achieved in a number of ways. Many of the labour laws are centrally enacted but are implemented by the state governments, e.g. the Workmen’s Compensation Act, 1923, the Factories Act, 1948. Effectively similar is the case with the Trade Unions Act, 1926 where the Registrar of Trade Unions is at the state level. Since even for unions with multistate jurisdiction for which it is the appropriate government the Central Government has, instead of appointing its own registrar, delegated the power of registration of such unions to the registrar of the state where the office of the said union is located. Many of the laws have given the power to enforce the law to the ‘appropriate government’ as in the case of the Industrial Disputes Act 1947 and the Contract Labour Act, the two most discussed labour legislations. 7.24 Most state governments contribute to the volume and complexity of labour laws by enacting new state laws and amending the Central legislation. Employers’ organisations normally complain that they have to maintain too many registers, file too many returns and face too many inspections. This increases the transaction cost of compliance with legal provisions. Not only are they confronted with a ‘large’ number of labour acts but also with conflicting connotation of the same words in different legislations.

Lack of Uniformity in Definitions 7.25 The Commission finds that many common terms have been defined differently in different statutes, the cognate definitions have not been taken into consideration. Definition of a ‘worker’ in some statutes such as Industrial Disputes Act, 1947 has been so confusing that it has generated a lot of litigation on this issue alone. Industrial Disputes Act and Employers’ Liability Act use both these terms. All workmen are employees but not all employees are workmen. While the non-teaching employees of a university are workmen but teachers, as decided by the Supreme Court of India, are not workmen. A

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Development Officer of Life Insurance Corporation of India is a workman but the medical representative of a pharmaceutical company is not. 7.26 Similarly, Child Labour (Prohibition and Regulation) Act applies to children up to the age of 14 years. That means youth above this age is legally in the labour market. But Trade Unions Act denies the right of membership of a trade union to a worker below the age of 18 years and the right of being an office bearer until the age of 21 years. A similar situation prevails in regard to terms like ‘wages’, ‘industry’, ‘employee’, ‘contract labour’ and so on. Even ‘factory’ has been defined differently in different Acts, namely, the Employees Provident Fund and Miscellaneous Provisions Act and the Factories Act.

Freedom to Fire & Exit 7.27 An aspect of labour regulation which has proved most contentious relates to job security. The ID Act, 1947 which stipulates elaborate mechanism for settlement of disputes through conciliation, arbitration and adjudication, also lays down procedures for making changes in the conditions of employment and separation of workers. Section 9-A requires that employers serve a notice of change in respect of matters relating to change in wages and allowances, provident fund, hours of work, leave and holidays (fourth schedule of the Act). 7.28 Under Chapter VA, which applies to enterprises employing 50 or more workers, employers are permitted to layoff workers after giving at least one month’s notice and a retrenchment compensation that is equal to 15 days of average pay for each year of completed service and the appropriate government is notified. It may be reiterated here that the number filter used i. e. 50 excludes the whole of the unorganised sector from its ambit. It does not apply also to almost all supervisory staff through the wage filter because hardly any supervisor in the organised sector gets Rs 16000 or less. 7.29 For closure of a unit the Act provides for the procedure which includes a sixty-day notice and compensation package to workers similar to that under retrenchment.

7.30 For relatively larger establishments, currently defined as those with 100 or more workers, the Act, under Chapter VB provides, in addition to the conditions as laid under Chapter VA, that an employer is not permitted to layoff or retrench any worker or close down operations of the establishment without prior permission from the appropriate government. Permission is, however, deemed to have been granted by the appropriate government after 60 days if no communication is received from it by then. 7.31 In the on-going debate on labour flexibility and labour reforms, there has been focus on the issue of the employers’ freedom to retrench workers. There does not seem to be much problem either to industry or to unions in the prescribed procedure and compensation to be paid to the workers in general. The industry has mainly objected to the provision of prior government permission before lay-off, retrenchment and closure, under Chapter V-B. This section was introduced in 1976 and made applicable to establishments employing 300 or more workers, but amended in 1982 to make it applicable to establishments employing 100 or more workers. It has been argued that this provision has made workforce adjustment practically impossible because government permission has been difficult to obtain. 7.32 As a result, it has a negative effect on investment, growth and, particularly, employment, in industry as the establishments have refrained from hiring workers because they would find it difficult to retrench them, if not required, in future. The removal of this section of workers, it is argued, will encourage enterprises to employ more labour in functioning enterprises and close down non-viable ones thus allowing them to release the tied up resources in non-performing assets and efficiently reallocate them to more productive uses and generate employment. As has been discussed in the previous section, the argument that the restrictions on retrenchment have negatively influenced expansion of industry and employment does not bear theoretical and empirical scrutiny. Also, permissions under Chapter VB have been liberally granted by the state governments in recent years. Still, it only sounds logical that an enterprise should have the freedom to employ only as much labour as it requires for its operations and should not be compelled to carry on burden of surplus labour. At the same time, there 175

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should be adequate provision of notice and severance compensation in the cases of retrenchment. Similarly, if a business is no longer economically viable, its owner should have the freedom to close it down, with fair and legitimate provision for compensation to those affected, including the workers. This Commission considers that legal restrictions on separation, temporary or permanent, may be consensually relaxed to a considerable degree if the state agrees to become the employer of last resort and ensures provision of adequate social security for the contingently unemployed. 7.33 Section 9-A of the Act is also under attack as the argument goes that this provision “can delay or obstruct all worthwhile change in technology, workload, manning, shift work, etc.” ( Johri 1996 quoted in Shyam Sundar 2005). It is contended that the trade unions misuse the provision and hamper the firm’s growth, which could have otherwise benefited from enhanced competitiveness by the introduction of necessary technological changes and new skills. Since only those changes that adversely affect the conditions of service of a workman comes under the ambit of this section after the Supreme Court ruling in 1973 in the case of Hindustan Lever Ltd v D.J. Bahadur, any hasty change in the section may reduce the workplace situation to that of unfettered managerial tyranny and abrogation of social dignity and human rights of workers. In fact, abrogation of Chapter VB and even chapter VA will not be as detrimental to the dignity and human rights of workers as the abrogation of section 9A. Any review of this section should therefore take into account the likely adverse impact of the changes contemplated on the dignity and human rights of workers at the workplace.

Contract Labour 7.34 Contract Labour is a significant and growing form of employment. It generally refers to workers engaged through an intermediary and is based on a triangular relationship between the user enterprises, the contractor including the sub contractor and the workers. 7.35 Contract Labour is usually employed to meet the short-term requirements of labour, caused by fluctuations in output, seasonal or order-induced, or to perform certain non- regular tasks in an enterprise. It is,

however, often used by enterprises to perform regular and perennial activities primarily to reduce real and transaction costs associated with job security e.g. separation process and pay and social security. Widespread prevalence of such practices prompted enactment of the Contract Labour (Regulation and Abolition) Act, 1970. The aim of the Act was regulation of contract labour where its use is justified in certain activities and for abolition of contract labour in situations which warrant continuous (perennial) employment. Under this Act the appropriate government has been empowered to prohibit contract labour “in any process, operation or other work in any establishment.” The Act also regulates employment of contract labour in all the activities carried out by contract labour. The Act defines a contractor and a principal employer. Every establishment that intends to employ contract workers through a contractor is required to register as a principal employer under the Act. And every contractor covered under the Act is expected to obtain a license as a labour contractor. Apart from the abolition of contract labour in certain circumstances, the main provisions of the Act relate to the regulation of conditions of work, health and welfare of contract labour. 7.36 The CLA has been criticised by industry associations in recent years on the plea that it brings in inflexibility in labour use in so far as an enterprise is unable to vary its workforce in accordance with the volume of work which often fluctuates sharply from season to season and year to year, even though the work may be considered to be part of its ‘perennial’ activities. They argue that the concept of `core’ activities has changed in the wake of globalised production systems and production based on orders. 7.37 Organisations of workers have also not been happy mainly because of the ineffectiveness in the implementation of the Act. Although they welcome its provisions, especially those relating to social security and working conditions, these are widely and rampantly violated. Given a general shift in the power balance in favour of employers, often strengthened by state policies in the name of attracting investments, there has also been laxity in enforcement of many labour laws. This has also added to the maneuverability of employers in the poor,

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sometimes lack of, adherence to certain provisions especially relating to social security and working conditions. The net result has been an increase in the sense of vulnerability among the workers attested to by recent violent protests, riot-like, by such workers. 7.38 The incidence of contract labour in the country has increased significantly in recent decades which has been actively encouraged by some state governments while some others going about cautiously. In the organised factories sector in India, an estimate shows that the share of contract labour for India as a whole increased from about 12 per cent in 1985 to about 23 per cent in 2002 (Pages and Roy 2006). The increase in the share of contract labour varied across states, declining in very few such as Assam and Karnataka, while increasing in most others. Andhra Pradesh seems to have the fastest increase in contract labour, from 33.8 percent of factory employment in 1985 to 62 percent in 2002. As a percentage of employment in manufacturing, contract labour “increased from 7% in 1984 to 21.6% in 1998 in India. The latest available figures (2001) on the Census Sector (mainly establishments in the industry sector with more than 100 employees) show the huge prevalence of contract workers in Andhra Pradesh (64%), which passed a law in 2003 permitting temporary contract labour employment in what it calls ‘core’ activities of firms and widening the scope of non-core activities. The recent trends in the enforcement of the Contract Labour Act have shown very low and declining levels of inspection (as a proportion of prosecutions and convictions) under the Act in the central sphere” (Anant et al 2006). 7.39 Under the assumption that greater labour market flexibility would attract more investment in their regions, many state governments in recent years have amended the provisions of the Act to make the use of contract labour easier in many activities and industries, such as support service in manufacturing establishments and enterprises engaged in exports or located in Export Processing Zones. The most radical of such changes seem to have been made in Andhra Pradesh which eliminated the restrictions on use of contract labour in ‘non-core’ activities (defined through a description of tasks in the amendment) and provide for exemption to be granted in any activity or establishment or to any class of contractors 177

by the State Government, instead of by a Tripartite Advisory Board earlier, which stands abolished. While the Central law allows for abolition based on the duration of work, the Second National Commission on Labour (as well as state amendments) chose to focus on the functional nature of work to determine cases where the government can use its power to abolish contract labour. 7.40 It seems illogical not to allow an enterprise to employ workers on a non-regular, contract basis if the work that it carries out is not of a regular nature and varies in volume from time to time. At the same time, absence of restriction on the practice of contract labour may result in greater use of this form of employment by employers resulting in the denial of job security and other benefits to workers. The Commission therefore is of the opinion that while clearly specifying the ‘core’ or ‘perennial’ nature of work, there should be strict enforcement of the provisions relating to social security and working conditions.

Inspection System 7.41 In the campaign for labour reforms, it is often made out by industry associations and their supporters that inspection in regard to labour law violation is throttling the growth of industry and employment. That is why the system is often, and disparagingly, referred to as “Inspector Raj”. But, it is argued by some that the very term ‘Inspector Raj’ is meant to de-legitimise the system of inspection, which in itself is a well-intended and legitimate mechanism to ensure that the existing laws are properly implemented. It may also be mentioned in this context that India has ratified the ILO Convention No. 81- Labour Inspection Convention, 1947 concerning labour inspection in industry and commerce under which member countries are to provide sufficient number of inspectors and extend facilities to them to enforce the legal provisions and protection accorded under various labour laws. 7.42 The demand for doing away with labour inspection, in our view, is fraught with consequences far beyond the field of labour. In some states, there is already a demand from the powerful traders’ lobby to do away with sales tax inspection in the name of harassment and inspection. If the logic of such demands are extended to

The Challenge of Employment in India

other spheres we can very well imagine the power of the state to discharge its primary obligation of designing and enforcing various kinds of regulatory laws. 7.43 This Commission does recognise that while inspection is a well meaning procedure to ensure compliance of labour laws, there have always been legitimate complaints about its misuse resulting in harassment, bribery and corruption. Several states have in recent years relaxed the inspection system, by doing away with regular inspection and to have inspections only on complaints, prior permission of civil authorities, joint inspection etc. What is required is the reform of the enforcement mechanism to improve its effectiveness (e.g. through a system of incentives/disincentives) rather than ‘throwing the baby with the bath water’. 7.44 A system of self-certification has already been instituted by some of the states. The trade unions have strongly opposed the replacement of the inspection system by self-certification, given the flagrant violation of labour laws by the employers. It is surprising but true that selfcertification also has not found favour with employers, probably because penalty attached with defaults if discovered after self-certification are often more stringent than in the case of non-compliance found in regular inspections.

Minimum Wages 7.45 That there should be a statutorily supported floor wage is an accepted part of national labour policy. Minimum Wage Act 1948, aims to ensure it by making it obligatory to fix minimum wages in scheduled employment and make its non-payment illegal. Minimum wages are fixed by appropriate, Central or state governments. Not all employments but only scheduled employments are covered. Wages fixed often are below even the basic needs. Different wages have been fixed under different employments on a trade-specific or industry-specific basis in which a number of criteria are considered. 7.46 The Commission, having examined all aspects, came to the view that minimum wage has to be a part of the basic tenets of labour and economic policies. It is in favour of a need based national minimum wage that

should act as a floor wage below which no trade-specific or employment-specific minimum wage should be fixed. A need-based wage takes into account the calorific requirements of the worker and his/her family, other needs of clothing, housing and medical and social security. th The Indian Labour Conference in its 15 session held in 1957 recommended certain norms for fixation/revision of minimum wages. These norms should be followed to fix the national minimum wage. Based on this norm, a national floor wage has been calculated and announced by the Ministry of Labour and Employment but this has not yet been given the statutory backing.

Issues of Industrial Relations Law 7.47 The Industrial relations law in India is characterized by the presence of the state at every stage of industrial relations, which has hampered the growth of bipartite joint decision making through collective bargaining between the parties directly involved in the production and industrial relations. Needless to say that collective bargaining in good faith is a sine qua non for healthy industrial relations. The moment a dispute is apprehended by conciliation officer, the latter is enjoined to take up conciliation proceedings. Conciliation normally succeeds in those cases where an agreement could be arrived at even without conciliation. If the conciliation fails, failure report is submitted to the government, which may refer the case to the industrial tribunal or a labour court as the case may warrant. This normally leads to a long litigation process to the detriment of the cause of the party that cannot afford to wait. The main direction of movement of an industrial dispute is towards adjudication rather than the bargaining table. The adjudication-led industrial dispute resolution has only overloaded the judicial system to the detriment of all concerned, especially the workers.

Numerical & Wage Thresholds & their Consequences 7.48 Labour laws in India, in general, have numerical thresholds which define their applicability. Of course, some of the labour laws do not have an employment limit for applicability. For instance, the Minimum Wages Act 1948 applies to all schedule employments/establishments. However, even in such a case employment level in the

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industry is brought in; any industry that employs less than 1000 workers cannot find place in the schedule. But for chapters VA and VB the Industrial Disputes Act 1947 applies to certain establishments in the unorganised sector, which come within the purview of its definition of ‘industry’. The Trade Unions Act applies to all enterprises in trade or industry. Even very small enterprises can have unionised workers who are members of an industry (not enterprise) level union. 7.49 Employment limit for applicability varies among different laws, The Motor Transport Workers Act 1961 and the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act 1979 have a lower limit of 5; the limit is 10 (with power) and 20 (without power) in the case of the Factories Act 1948; the limit is 10 in the Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Act 1996 and Payment of Gratuity Act, 1972; 20 under Contract Labour (Regulation and Abolition) Act 1970 and 100 in the case of the Industrial Employment (Standing Orders) Act 1946. There is also varied coverage of social security laws such as the ESI Act 1948, the Employees’ Provident Fund Act 1952, Maternity Benefit Act 1961 and the Workmen’s Compensation Act 1923. 7.50 Numerical threshold in most labour legislation has been quite problematic. For example the threshold of 10 workers with power and 20 workers without power could discourage enlargement of employment in small enterprises to that size in order to avoid application of Factories Act. It may, instead, lead to artificial fragmentation inflating the size of the so-called unorganised sector to the detriment of the welfare of workers at work and possibly productivity and economy of scale. Moreover, the number 10 filters out powerdriven small sector employees from the welfare provisions of the Factories Act. Industrial Disputes Act 1947 provides three levels of protection to the workmen against layoffs, retrenchment and closure according to the size of the firms – no protection to those working in a firm employing less than 50 workmen, some protection to those working in industries employing more than 50 but less than 100 workmen and more protection to those employed in still larger firms.

7.51 Such number filters have been introduced presumably on the ground of the capacity to pay for the benefit provision or lack thereof of small enterprises. This leads to denial of crèche facility at work to a lot of women factory workers in enterprises employing 30 women or less. Shelter, rest room and lunch room facilities can be enjoyed in factories employing regularly more than one hundred and fifty workers. Obviously, the number has been decided subjectively. Labour rights enshrined in such statutes do not obviously take off from the needs of the workers but from the imagined or real lack of capacity to pay of the employers. Had the legislation been drafted from the point of view of the basic needs of workers at workplace, such needs of maternity and rest and the like could not have been denied to any one needing them and a proper mechanism of meeting those needs at workplace or nearby might have been designed and instituted. 7.52 Even minimum wages can be fixed only in scheduled employment employing more than one thousand workers. The numerical threshold or filter wherever used tends to deny even basic labour rights to some sections of the workforce. It can thus be argued that the number filter could be eschewed altogether and difficulties of the individual employers, if any on this count, may be taken care of by the state or civil society. 7.53 The wage filters for the applicability of labour laws result in other undesirable consequences. While a non-supervisory manual or technical worker getting several thousands of rupees per month as salary or wage is entitled to the labour rights conferred to workman under IDA, but a supervisor is denied the same rights the moment he or she receives more than sixteen hundred rupees per month as wages. Similarly, the Plantation Labour Act 1951 defines worker as persons receiving seven hundred and fifty rupees per month or less. 7.54 The Study Group on Labour Laws set up by the National Commission on Labour, 2002 (NCL 2002) had recommended an employment level of 50 persons (not merely workers, thus including managerial and supervisory staff within the limit) for coverage of existing labour laws. They proposed that a separate law, named small enterprises (employment relations) Act, may be

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enacted or be included in the general law as a separate chapter, which would apply to enterprises below that limit. This limit was subsequently brought down to 19 workers by the Report of the National Commission on Labour in 2002, while proposing new legislation for the small establishments.

Limited Coverage & Poor Enforcement 7.55 As we have seen in earlier paras, the most important limitation of the existing labour regulation lies in its limited coverage and poor enforcement. Most laws apply only to relatively bigger establishments employing beyond a certain number, usually ten, workers. Thus, there is hardly any regulation of conditions of work and no provision for social security of any kind for the workers working in establishments employing less than ten workers. And they constitute an overwhelming majority – 92 per cent of all workers and 84 per cent of all wage earners. The degree of ‘flexibility’ for this category of workers is so high that they are left completely unprotected from the vagaries of the market and any arbitrary actions of the employers.

Labour Laws & the Unorganised Sector 7.56 The NCEUS had submitted a detailed and comprehensive Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector (NCEUS 2007a). The Report found that almost all labour laws in India are circumscribed by the scope of their coverage, which could be defined in terms of the type of employment, type of employment relationship, nature and size of the ‘establishment’, including the number of workers, and area. There are very few laws that apply universally to all workers, whether in the organised or in the unorganised sectors. Other laws apply unequivocally to the organised sector. A third set of laws is applicable to some segments of the workers in the unorganised sector (in a few cases, they may also cover some segments of the organised sector). Overall, the unorganised sector workers are covered in a piece meal fashion in various legislations and lack comprehensive protection of the minimum conditions of work.

Central Laws for Unorganised Sector Workers 7.57 Central laws, which regulate conditions of work in the unorganised sector, fall into three groups. The first group applies generally to the unorganised sector e.g. the Equal Remuneration Act, 1976. The second group of laws applies to certain groups of workers in the unorganised sector and the scope of application is restricted by the nature of employment, or size of employment e.g., The Minimum Wages Act, 1948 and the Trade Unions Act, 1926. The third group of laws apply mainly to the organised sector workers (viz. factories, establishments, or enterprises employing 10 or more workers), but in certain cases, or by relaxing the employment criterion, these laws can (be made to) apply to some sections of workers in the unorganised sector e.g. Workmen’s Compensation Act, 1923, the Contract Labour (Regulation & Abolition) Act, 1970.

State Laws for Unorganised Sector Works 7.58 State Laws: There have been some attempts at the state level to regulate conditions of work in the unorganised sector and of agricultural workers. Important examples are the Kerala Agricultural Workers Act (1974), Tripura Agriculture Workers Act,1986 and the Maharashtra Mathadi, Hamal and Other Manual Workers (Regulation of Employment and Welfare) Act, 1969. Kerala also has a number of Statutory Workers Welfare Funds and Boards to provide a number of social security benefits for the unorganised workers the functioning of which are closely monitored by unions as well as individual workers who by and large, have some level of basic education. The Minimum Wages Act is also observed for the same reason as the existence of a vigilant body of trade unions as well as workers. As we pointed out in our Report on Conditions of Work, only a very small proportion of unorganised workers in Kerala do not get a notional national minimum wage.

Experience of Implementation of Laws for the Unorganised Sector 7.59 The Commission’s above mentioned Report found that the implementation of the existing laws is abysmally poor. The main constraints on effective implementation of the existing laws appear to be the following: small size of the enforcement machinery in

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relation to the large and dispersed workforce and inadequate infrastructure; almost exclusive focus on the organised sector; lack of voice for the unorganised workers and no participation of their representatives in ensuring effective implementation; and lack of or inadequate sensitivity among those responsible for implementation. Thus, the Report concluded that as far as the regulatory framework for ensuring minimum conditions of work for unorganised wage workers is concerned: (a) there is lack of comprehensive and appropriate regulation in India; and (b) even where regulations exist, there are inadequate and ineffective implementation mechanisms. The Report recommended that there is a need for a comprehensive legislation, which can provide a regulatory framework for minimum conditions of work for all workers.

•

Non-discrimination

•

Safety equipment and compensation for accident

•

Protection from sexual harassment

•

Provision of child-care and basic amenities at workplace

7.61 On a minimum social security for all unorganised workers, the Bills mandate the Central Government to formulate and notify a National Security Scheme for the agricultural and non-agricultural workers. The total outlay of the scheme proposed to cover all agricultural workers is estimated at Rs. 19,400 crores. Outlay for nonagricultural workers is estimated at Rs. 12,950 crores. The scheme should include package of National Minimum Social Security benefits whose minimum levels are prescribed as follows:

Recommendations on Ensuring Minimum • Conditions of Work & Social Security 7.60 The Commission’s above mentioned Report contained two draft Bills to regulate the conditions of work of the unorganised workers as there are significant differences between the structure of the workforce in the agricultural and non-agricultural sectors. The level of existing laws to protect workers is varied across the two sectors, agricultural and non-agricultural. Further, the nature of the machinery for the implementation of the existing laws with respect to the agricultural and nonagricultural workers is separate. The Bills prescribe minimum conditions of work and introduction of a minimum social security for both agricultural and nonagricultural unorganised workers. On the minimum conditions of work for all unorganised workers, the Bill’s key recommendations include: •

Eight –hour working day with half-hour break

•

One paid day of rest per week

•

National Minimum Wage for all employments not in the Minimum Wages Act.

•

Piece-rate wage to equal time rate wage.

•

Women’s work to be remunerated on par

•

Deferred payment of wages to attract penal interest

•

Deductions in wages to attract fines

•

Right to organize

•

Health benefits including o

Hospitalisation benefit for the worker and his/her family to the tune of Rs. 15,000 per year

o

Sickness allowance for 15 days beyond 3 days of hospitalization @ Rs. 50 per day

o

Maternity benefit to the extent of Rs. 1,000 to the worker/spouse of worker

Life and disability cover for all the unorganised workers to include o

•

Life and disability insurance to the tune of Rs. 30,000 (natural death); Rs. 75,000 (accidental death or total permanent disability) and Rs. 37,500 (in case of partial permanent disability)

Old age security in the form of: o

Pension of Rs. 200 per month to all BPL workers above the age of 60 years

o

Provident Fund for other workers

7.62 The scheme is to be implemented within a period of five years. The organizational model is federal where the implementation will be the responsibility of the State Social Security and Welfare Board with the assistance of the Workers’ Facilitation Centre at the grass root level, supervised and monitored by the National Social Security and Welfare Board.

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7.63 The Commission has also carefully considered and prescribed a tripartite dispute resolution machinery, which in its view is likely to be more effective than the implementation machinery for the few existing laws that are in force for workers in the unorganised sector.

An Action Programme for the Unorganised Sector 7.64 The main recommendations of the Report have been summarized in the form of a 13-point Action Programme for the Sector framed under four groups viz., (i) protective measures for workers, (ii) a package for measures for the marginal and small farmers, (iii) measures to improve growth of the non-agricultural sector, and (iv) measures to expand employment and improve employability. 7.65 Detailed recommendations were made in the earlier theme-specific reports such as Report on Social Security for Unorganised Workers (NCEUS 2006), Reports on Financing of Enterprises Creation of a National Fund for Unorganised Sector (NCEUS 2007b), A Special Programme for Marginal and Small Farmers (NCEUS 2008b), Report on Skill Formation and Employment Assurance in the Unorganised Sector (NCEUS 2009b) and Report on Growth Pole for the Unorganised Sector (NCEUS 2009a). The need for a public employment programme has been taken up in this Report. While providing a macro economic picture of employment and unemployment in the country by focusing on the conditions in the informal economy, this Report has sought to weave together all these recommendations by arguing for an informal economycentred perspective for an inclusive development.

Recommendations for Labour Law Reforms Rationalisation & Consolidation of Labour Laws 7.66 As pointed out earlier there is an urgent need to consolidate the labour laws and bring uniformity in definitions of certain key terms like ‘employer’, ‘employee’, ‘establishment’, and ‘wages’. In this context, the Commission feels that there is a need to formulate a National Labour Code. There are already two draft codes

available. The first draft was formulated by the Study Group on Labour Law constituted by the First National Commission on Labour (FNCL). However, as the Draft Code failed to evoke requisite positive response from the social partners, the FNCL found a single Code to be impractical and even undesirable at that stage. While the FNCL agreed with the Study Group on the desirability of simplification and harmonisation of definitions, it felt that a feasible degree of simplification and uniformity may be achieved through the integration of “enactments which cover subjects having common objectives.” 7.67 Another serious attempt to simplify, rationalize, harmonize, and codify labour laws were made by the National Labour Law Association (NLLA) during the late 1980s and early 1990s. After several years of consultation among labour lawyers, employers, trade union leaders and labour administrators, the Association finally came out with a comprehensive but simple Draft Indian Labour Code, 1994. The approach of the NLLA in drafting the National Labour Code was almost the same as that of the Study Group of the FNCL on Labour Law. 7.68 The Second National Commission on Labour (SNCL) agreed with its own Study Group on labour law and large volume of opinion that the existing set of labour laws should be broadly grouped into four or five groups pertaining to (i) industrial relations, (ii) wages (iii) social security, (iv) safety and (v) welfare and working conditions. The SNCL, however, felt that, instead of separate laws, it may be advantageous to incorporate all the provisions relating various groups into a single law, with separate parts in respect of establishments employing less than 20 persons. The SNCL was of the view that the coverage of the term ‘worker’ should be the same in all groups of laws, subject to the stipulation that social security benefits must be available to all employees. Finally, the Commission opined, “… in an attempt to rationalize labour laws, we could, with advantage, group the existing labour laws into well-recognised functional groups. While the ultimate object must be to incorporate all such provisions in a comprehensive Code, such a codification may have to be done in stages and what we have proposed is hopefully the first step’.

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7.69 NCEUS feels that the approach towards simplification, rationalisation and consolidation of labour laws in India taken by the Study Group of the FNLC and especially the one taken by the NLLA towards preparation of a single labour code are essentially unexceptionable. The labour code should also lay down a floor of substantive labour rights or standards such as minimum wages, maximum hours of work, minimum standards of safety and health at workplace and so on. This could be in the form of a basic law which would be applicable to all workers. Applicability of some of the other provisions may vary depending on the size of the establishments. The interest of labour in increasing labour standards beyond the statutory level may be best left to collective bargaining between the employer/employers and trade unions. Collective bargaining should be considered the main form of joint decision making in resolving interest disputes. 7.70 As the situation stands today, both labour and managements are demanding simplification, rationalisation and consolidation of labour laws. The Commission is of the view that it may now be feasible to strike a consensus on the design and contents of the Labour Code. The Commission, therefore, recommends that a National Labour Code may be formulated. If the consensus between social partners for whatsoever reasons does not materialise in a short time, the suggestions of the two NCLs may be followed to consolidate the labour laws into a few cognate groups such as 1. Labour Relations, 2. Wages, 3 Working Conditions, 4.Social Security, 5. Conditions of Work for Unorganised Labour, 6. Conditions of Work for Agriculture Labour, as a first step towards evolving a National Labour Code. In either case, the Code prepared by the NLLA may be taken as a model for further discussion.

Contract Labour 7.71 As seen earlier, there is widespread prevalence of non-compliance with various provisions of the CLA which provide for certain benefits to contract workers. In general, they are denied minimum wages and social security benefits. This situation cannot be allowed to continue. The Commission, therefore, feels that the Act may be amended so as to streamline regulation and make

it more effective. It recommends that all labour laws specifying conditions of work and social security may be made applicable to workers employed by or through contractors.

It must be ensured that: •

The contract workers are paid the minimum wages as prescribed by law, or wages paid to regular workers for similar work by the employing establishments, whichever is higher.

•

Provision of regular, full and timely payment of wages as in Payment of Wages Act should be strictly complied with.

•

Provisions of ESIA (Workmen’s Compensation Act and Maternity Benefit Act where ESIA is not applicable) and Provident Fund Act are applied to the contract workers.

•

All other safety and welfare provisions at the worksite as provided in the Act, are strictly adhered to.

•

Responsibility of making the payment of contributions towards ESIS, PF etc and necessary payment of compensation under Workmen’s Compensation Act lies with the principal employer.

•

The principal employer’s representative is present to ensure the compliance of payment of stipulated wages and compliance of the Payment of Wages Act, as provided under the Act.

7.72 For ensuring the above, existing provisions should be made explicit parts of the Contract Labour Act. Where they already exist, procedures and responsibilities for their implementation should be made clear. Where the proposed provisions do not exist, they may be added to the Act. In the case where these provisions exist in other legislations and are meant to be applied to contract labour also, necessary cross references should be made in the Contract Labour Act. For example, even if Minimum Wages Act was implied to be applicable to contract labour in scheduled activities, CLA should also specifically provide for it. 7.73 At the same time, the Commission feels that a more rational method of identifying activities which

Industrial Disputes Act 7.74 This is the main legislation dealing with employment relations of the organised sector. Presently, every time there is a change proposed on working conditions, a 21 day’s notice need to be given to all concerned including the government under section 9A. Disputes relating to notice of change under section 9A should be settled by collective bargaining or through resort to grievance settlement machinery and not through conciliation procedures which take a long time to conclude. A Grievance Settlement Machinery as provided under Chapter II-B section 9-C of the IDA needs to be put in place to deal with such issues. 7.75 The retrenchment compensation paid out at present is totally inadequate. In fact, it is amongst the lowest in the world. This is not fair to the workers. An increase in the retrenchment compensation has been recommended from time to time by various commissions/ committees and has also been supported by the industry. The Commission recommends that retrenchment compensation should be enhanced at least to 45 days from the current 15 days. Moreover, provisions relating to providing notice and retrenchment compensation under chapter VA should be extended to all establishments covered by the law. 7.76 At the same time a scheme for unemployment insurance scheme for the formal workers should be introduced to which the employers should contribute. The ESIC has recently introduced an unemployment allowance for the first time under the Rajiv Gandhi Shramik Kalyan Yojna (Unemployment Allowance st Scheme) launched on 1 April, 2005, granting an unemployment allowance of a maximum of six months duration during the entire service for a person who has been a member of the ESIC for at least five years. Based on this experience, the liability to pay the retrenchment compensation can be converted into an insurance-based, social security benefit. This would be in keeping with the shifts world-wide from employer liability to insurancebased social security. The Commission feels that if the said scheme is expanded in terms of coverage and the

benefits, it could serve the purpose of providing a safety net to the workers. Two alterations in the existing scheme could be considered for making it attractive enough to act as a safety net for the workers. These are: (i) The minimum period for which contribution in respect of the applicant should have been paid / payable may be reduced from five to one year; (ii) Period over which unemployment allowance will be payable is to be increased from six months to one year. In addition, as an attempt to establish a buffer to meet the enhanced cost, one time contribution may be sought from the employers to the scheme. On a preliminary examination, the Commission found that such an enhancement of coverage and benefit in the scheme is feasible and workable. 7.77 Based on these basic conditions, a decision on retrenchment may be taken through a process of collective bargaining for any other aspects not covered here but found important by both employers and employees. Once such a process has been gone through, the provision requiring prior permission under chapter VB would become redundant and hence be made inapplicable. The Commission feels that the above approach would provide a safety net to the workers while providing flexibility in labour use as dictated by production conditions to the employers as well.

Inspection System 7.78 Reduction in the number of laws and corresponding authorities should result in the reduction of number of inspections. Already the proposed amendment of 2005 (bill pending in Parliament) of the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by certain Establishments) Act 1988 proposes to reduce the number of returns, registers and records submitted to the government. This can extend to all establishments.

Minimum Wages 7.79 The Commission would like to reiterate the recommendation made in its earlier report (NCEUS, 2007a) that there should be a statutory National Minimum Wage which shall represent the floor level of wage for any employment in the country based on the norms such as the calorific requirements of the worker

184

Labour Law Reforms : Beyond a Narrow Agenda

and his/her family, other needs of clothing, housing and th medical and social security recommended by ILC, 15 Session in 1957. This wage shall be applicable to all employments presently not covered under the Minimum Wages Act of the state concerned, and would be applicable to both wage workers and home workers. With respect to the employments covered under the Minimum Wages Act, the state government has to ensure that the minimum wage fixed under the Minimum Wages Act is not lower than the National Minimum Wage.

Labour Administration 7.80 The Commission feels that the best method of ensuring proper enforcement of labour laws is through the vigil of trade unions. Greater reliance on the collective bargaining process (social dialogue) should be placed on resolution of labour disputes. This would reduce the pressure on labour judiciary. At present more than 18,000 cases are pending in industrial tribunals-cum-labour courts. To reduce the backlog, the labour judiciary needs to be strengthened. Lok Adalats should also be encouraged to enable faster disposal of cases. 7.81 Stricter law enforcement cannot be achieved without strengthening the labour administrative machinery. In this context, the officers of the Labour

Department at the Centre, State & UT government levels should be given proper status, staff, infrastructural back up, and support facilities, like office equipment, library, transport and communication. A database should be built up on all aspects relating to industrial relations and the officers of the Labour Departments should have access to such database through computer connectivity. It is also necessary to improve the knowledge, skills and competence of the officers to enable them to win the confidence of the employers and workmen. Induction, training and periodical refresher courses are necessary to improve the efficiency and effectiveness of officers. As recommended by the SNCL, the Govt. may consider to create an All India Service for labour administration to provide professional experts in the field of labour administration in the labour departments, autonomous bodies and labour adjudications.

Conclusion 7.82 The Commission visualises the agenda for labour law reforms to be a broad-based one and not just limited to the issue of labour flexibility. Labour reforms will have to aim at providing a minimum set of conditions of work to all workers, a minimum level of social security, better and efficient labour administration machinery and a simple and fast-responsive grievance redressal machinery.

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The Challenge of Employment in India

Appendix 7.1: A Note on Estimates of Effectiveness of Coverage of Important Labour Laws An estimate revealing the effectiveness of the coverage of important labour laws for the year 1999-00 has been attempted. The third column in Table 7.1.1 gives estimates of the coverage of 10 different labour regulations by definition. In each of these regulations the applicability and the coverage of the provisions are defined. The applicability of different labour regulations vary and differences are in terms of enterprise size, sector or industry, employment status, locale (notified areas) and so on. In some regulations such as the Factories Act, the Industrial Disputes Act, Payment of Bonus Act, the Employees State Insurance Act, the Employees Provident Fund Act, Industrial Disputes Act and the Industrial Employment (Standing Order) Act, the provisions of the Act are applicable only to enterprises employing above a certain number of workers. For example, the Factories Act is applicable to all manufacturing enterprises employing 10 workers or more and using power or 20 workers or more without the use of power. Similarly, the provisions in the Employees State Insurance Act, the Employees Provident Fund Act, Industrial Disputes Act and the Industrial Employment (Standing Order) Act are applicable only to regular employees and not to temporary or casual workers. Certain regulations such as the Minimum Wages Act and the Employees Provident Fund Act are applicable only to industries or processes or employments that are listed in a schedule attached to the Act, while the Shops and Establishments Act is applicable only in certain notified urban areas. Taking all this into consideration, we have identified different criteria for applicability of the 10 labour regulations listed in Table 7.1.1. These criteria, as noted above, vary from regulation to regulation. By applying these criteria on unit level data on hired workers in the NSS surveys on employment and unemployment, estimates

for the number of workers covered under each of these 10 regulations in 1999-2000 have been obtained. The NSS estimates are then adjusted to worker-population estimates from the Census. Some caveats. The NSS does not make a distinction between enterprises using power and others not using power, hence the estimates for the coverage of Factories Act includes those enterprises. In some regulations such as the Payment of Wages Act, Equal Remuneration Act and Payment of Bonus Act, the provisions are applicable only to workers receiving wages below a certain wage limit. Again due to data limitations, this wage limit has been ignored in the estimates provided in Table 7.1.1 Finally, in some regulations such as the Workmen’s Compensation Act, the provisions are applicable only if a worker has completed a minimum period of 6 months in the job. Since data on duration of work in an enterprise is not available from the NSS, this condition too has been ignored in the Table. The third column in Table 7.1.2 gives estimates of the number of workers actually covered by different regulations. These estimates are from different sources of the Ministry of Labour. The data are compiled by the Labour Bureau and generally pertain only to enterprises that have filed the returns as required under different laws. In the case of most of the regulations listed in Table 7.1.2, enforcement is the responsibility of the the state government. Thus, returns are filed by enterprises with the respective departments of the state governments. It should be noted here the record of filing returns has slackened in recent years following the initiation of economic reforms. Further, some states also fail to submit data to the compiling agency, viz. the Labour Bureau. Thus, some of the figures in column three of Table 7.1.2 are likely to be under-estimates of actual coverage of the regulations.

Source: * Estimated from unit level data of the NSS are only for hired workers. Note: Workers covered under different regulations in this table are identified based on the geographic applicability, work status, enterprise size, sector and industry and so on from the NSS. ** Includes employment in enterprises having between 10 and 20 workers and not using power. ***Includes workers receiving wages above the wage ceiling according to the Act. ### Includes regular workers who have worked less than 6 months in the enterprise.

Source:** is the ratio of workers actually covered by law to workers covered by definition. Estimated from different sources of the Ministry of Labour and generally pertain to the employment in enterprises that have submitted returns under the particular Act: Note: @Annual Reports Ministry of Labour. # Indian Labour Statistics. $ Indian Labour Year Book. & Report on the Functioning of the Minimum Wages Act. ## ESI News Letter. @@ EPF website: http://www.epfindia.nic.in/operational_stat.htm. 187

The Challenge of Employment in India

8

The Challenge of Skill Formation & Development Introduction 8.1 The level of technology and the concomitant levels of skills directly determine productivity of labour. Improvement of skill enhances labour productivity even with the existing technology. Labour productivity determines the potential relative shares of both labour and capital. Ceteris paribus rise in labour productivity is a necessary condition for raising living standards of both wage and non-wage earners. Potential for better wages of workers and remuneration of the self-employed and the living standards of the working poor increase parri passu with increased productivity of labour. Moreover, higher incomes and wages of the working poor would contribute to increased aggregate effective demand for goods and services produced both in informal and formal sectors stimulating investment and growth in both the sectors. Thus, a multiplier effect may result leading to faster growth all across. This Commission accordingly views skill formation, its up-gradation and development as a core agenda for improving the living standards of those working in the informal economy. 8.2 Since skill formation, like education in general, is a public good, it is best provided by public action and investment. When provisioning of a public good is privatized, it is denatured leading to differential inclusion in favour of the rich. Working poor of the informal sector would be left high and dry. Market cannot take care of 188

skill formation of the informal sector since the working poor lack exchange entitlement. Inclusive skill formation entails public investment through appropriately designed institutions. Designing of such institutions and mechanisms of skill imparting should take into account the specifics of the informal sector needs. Public expenditure entailed by the public goods character of skill formation will ultimately result in enhancing effective demand of the workers and their families. This targeted approach, cross-cutting sectors and activities, gender and rural/urban locations could be one of the many ways to translate the coming demographic burden (discussed in Chapter 5) into a demographic dividend. 8.3 It is this perspective that formed the basis of the Commission’s Report on Skill Formation and Employment Assurance in the Unorganised Sector. The report brought out various aspects of the need and also the ways to enlarge skill base of the economy in keeping with its large size, heterogeneity, and nature of the growth dynamics of the informal or unorganised sector. While recognizing the necessity of increasing the number of skilled persons across the economy, our report emphasized the need to take an informal sectorspecific view of the issue because of the preponderance of employment in informal sector. Skill requirement of the informal sector therefore has to be visualized quite differently from the formal sector. The Commission has also laid out

The Challenge of Skill Formation & Development

in the report a detailed strategy and formulated a set of recommendations for revamping, expanding and reorienting the existing skill development system in India. The present chapter summarises the main findings and recommendations of the Commission’s earlier report.

Skill Formation, Productivity & Growth 8.4 The term ‘skills’ is used in the literature to refer to a wide range of attributes and to that extent there is no clear definition of a skilled worker. In practical terms, the term used is marketable skill which commonly refers to any skill/expertise/ability that has a market value, i.e. which has the potential of being utilised for generating income/employment. According to the National Sample Survey Organisation (NSSO), any marketable skill, whether acquired through formal or informal means, irrespective of whether it is being marketed or not, whether the intention is to market it or not, is considered a skill. In this sense, an inventory of such marketable skills provides information on the kinds of work that people can do, irrespective of whether it has been acquired formally or not. 8.5 In this analytical review of the linkages among skills, productivity and growth, while we retain the practical definition of ‘marketable skills’ for detailing the skill profile of the Indian workforce, the Commission recognizes the issue of skill acquisition in its broadest sense, i.e. to encompass education, pre-employment training, on-the-job training, continuous learning and retraining.

The Skills-Productivity-Growth Link 8.6 Skill development is important because of its contribution to enhancing productivity at the individual, industry and also national levels because of the complementarities that exist between physical capital and human capital on the one hand and between technology and human capital on the other. Fast changing knowledge economies call for new core competencies among all learners in the society. This effort to see a change in the skill mix in fast changing economies has been recognized by a number of countries such as South Korea, which has a Comprehensive Plan for Lifelong Education and Learning, and Singapore which has

introduced a National Continuing Education and Training Framework and a Lifelong Learning Endowment Fund. 8.7 Moreover, skill development is an area where typically the markets might not deliver optimum volumes of skills that economies need because the ‘externalities’ in skill and training may result in its ‘under-provisioning’ if it is left entirely to market forces. This argument is considered to be especially relevant in the small firm contexts. Therefore, even though there might be an explicit recognition about the need for skills enhancement, the issues of who will provide it, where it will be provided, who will bear the costs and so on become crucial considerations. 8.8 Further, skill development is considered as an area where public or collective institutions become necessary in view of its public good character and because of the externalities mentioned above. It would be necessary to conceive and design appropriate institutions and mechanisms to consider the sources of the basic stimuli that signal the extent of skill requirements, i.e., whether it is demand-led or supply-led. These are extremely important, particularly when we consider the financing aspect. Existing systems of formal skill provisioning in most developing countries are found to cover a very small proportion of enterprises and create large supply-demand mismatches, resulting in skill shortages even in the presence of significant unemployment. In the context of ‘new’ needs being perceived in a globalised economy, these skill shortages are considered to pose a potential hindrance to sustained economic growth. The issue of matching skills to markets has led to a call for dismantling existing systems of skill provisioning in many countries or an overhaul of TVET systems.

The Case of the Informal Sector 8.9 The issue of skills has to be contextualized in India in terms of the specific characteristics of its workforce which is predominantly informal and engaged in the unorganised sector. More than three-fifths of this workforce is self-employed while of the remaining who are regular or casual wage workers, only half are employed in the organised sector. Moreover, there is a very large proportion of youth in the population. In the years to 189

The Challenge of Employment in India

come as well, the bulk of employment is likely to be in the unorganised sector of the economy. The skill requirements of the unorganised sector have to be visualized quite differently from the organised sector.

production are a combination of ‘social competencies’, covering basic literacy and numeracy and the ability to seek out markets and negotiate along with the industry or trade based technical skills.

8.10 The informal sector is highly heterogeneous, encompassing production units of different features and in a wide range of economic activities as well as people (i.e. workers, producers, employers) engaged in manufacturing or service activities under several types of employment relations and production arrangements. Given this diversity in the informal sector, the basic questions of skill-building and training (i.e. for whom, for what, what kind of training and how best it can be provided) have somewhat different dimensions. The Commission wishes to stress on this aspect, something that has been relatively neglected in the vast literature on the existing skill development systems in India.

8.13 Another set of issues relates to the identification of relevant demand for training for informal sector workers. Expansion of skill up-gradation of informal sector workers needs to follow an assessment of social demand rather than existing market demand. Skill expansion in this sector will require the active participation of public agencies. We stress strongly that there is the need for public technical and vocational education establishments or other forms of collective organizations to play a definite role in finding new ways of teaching and learning to make them more relevant to the sector’s needs. Given the large numerical presence of self-employed workers this point is especially relevant. However, ample scope and opportunity may be given to the private and non-governmental actors, especially those working with ‘not-for-profit’ motive and who wish to provide expanded opportunities for training to such workers. This requires close co-ordination between the public agencies and private actors at all levels, including the decentralized ones, particularly at the district-level, in order to arrive at realistic assessments of the training needs of those in the unorganised sector on the one hand and that of different areas and sectors on the other.

8.11 If we begin with the motivations of people in the informal sector for training we will realise that they may not immediately recognise the need for further skills acquisition at all. They may have little idea about where to go even if the skills are seen to be required. The principal problems of poor literacy and numeracy often prevent informal sector workers from participating successfully in the conventional training programmes, even if they perceive the need for training. Training can also be prohibitive in terms of costs – both direct and indirect. Even token fees for the training can form a real barrier for participation in training. Working hours are often long and any time off from the productive work means loss of income, which most can not afford. This would affect the willingness of workers to join a training programme, even if it is relevant and easily accessible. The training needs of different segments of informal workers also have to be factored in. For example, the expansion of training provisioning needs to be equitable and gender sensitive. It can not be in the nature of stereotyped expansions or left entirely to the market alone. These issues, therefore, have to be kept in mind when designing training programmes for the informal sector. 8.12 Coming to the content of training, the competencies required in the informal sector in a vast range of activities including in the micro enterprise-based

8.14 Finally, even as we recognize the diversity of training needs, the varying perceptions and abilities to undertake training in the informal sector, it is necessary to assert that the skills that are perceived or found necessary in the informal sector have to be ‘formally’ provided as this involves processes of accreditation, certification and standardization that are essential for enhanced productivity, both in the informal and formal sectors. Certification becomes very essential in order to ensure minimum levels of skills with potentials to enhance productivity. Standardization of quality is essential to ensure effective marketing of the products of the sector. Skill up-gradation is essential, along with other inputs, to achieving standardization. The viability of large parts of the informal economy might itself be contingent on the existence and provision of formal, standardised skills.

190

The Challenge of Skill Formation & Development

8.15 Thus, for many in the informal sector, the acquisition of formal skills might be a necessary condition to gain entry into segments of the labour market that can potentially generate greater income or to be part of viable production systems that can potentially result in better livelihoods. The Commission’s analysis strongly suggests that formal systems of skill imparting are essential for the informal sector.

Skill Profile of the Indian Workforce 8.16 For purposes of analysis different measurements of skills have been used in this chapter. The first is the level of education of the individual and the second is whether he/she underwent any form of vocational training. Vocational training is broadly defined as training that prepares an individual for a specific vocation or occupation. Vocational training may be formal or informal. Since acquisition of skills through non-formal training is, by definition unstructured, it is likely that the surveys on which our analysis is based underestimated the extent of non-formal skill acquisition, especially in certain sectors such as agriculture. This caveat should be borne in mind while using the results presented here. 8.17 There has been no special effort on the part of the Government to collect data on skills regularly as part of the administrative process. The main source of data at the national level is the Directorate General of Employment and Training (DGE&T), Ministry of Labour. The other sources of data on skills are the recent ad hoc surveys conducted by the National Sample Survey Organization (NSSO). The NSSO has asked questions relating to possession of skills in surveys of 1993-94, 1999-2000 and 2004-05. Each survey had a different scope, but taken together they give us some indication of the skill profile of the population. 8.18 Our analysis is based on the information regarding the level of marketable skills from both formal and informal sources, possessed by the people in India according to NSSO surveys and assessments of training through the formal vocational skill acquisition programmes. 1

Foundational Requirements: Literacy, Numeracy, Education 8.19 The levels of education of the population tell us about the generic and foundational skills residing in the population. In 2004-05 the share of 15 & above agegroup population who were illiterates or educated below the primary level comprised 47 per cent. This share was higher among women (58 per cent) and in rural areas (over 50 per cent). While 13 per cent of the population had primary education, 16 per cent of them had middle level of education. The share of educated persons i.e. those with secondary and above education was higher at 24 per cent. The share of educated persons is higher as expected among men and in urban areas. 8.20 One can expect a certain pace of cohort-wise improvement. Even among the 15-29 years population in 2004-05, educational attainment was still very low, with 31 per cent of them having below primary level of education and 38 per cent of them with primary or middle 1 level education only (Table 8.1). 8.21 The Commission in its 2007 Report on Working Conditions was of the firm view that low levels of education and skills have been one of the primary reasons for a hierarchy of work relationships, segmentation of the workforce and vulnerability. Improving the access of all sections of the population to quality education at least up to the secondary level, therefore, was highlighted as one of the most urgent developmental requirements.

Skill Base of Population in 1993-1994 8.22 The National Sample Survey on Employment and Unemployment, 50th Round (1993-94) canvassed a separate question on skill along with the questions on education and technical education. Analysis of this data reveals that nearly 90 per cent of the population above 15 years did not have any skills. Approximately 10 per cent of them reported as having skills (91.2 million). The proportion of skilled workers in the labour force thus, was very low. In rural areas, only about 10 per cent of the men (34.2 million) and 6.3 per cent of the women (20.3 million) possessed specific marketable (formal or

There is some improvement over the years. In 1993-94, in the age group 15-29 years, the share of persons educated up to below primary

was 45.2 per cent while 32 per cent had passed primary or middle classes. 191

non-formal) skills. The percentages reported are higher in urban areas, but still very low -- only 19.6 per cent for men (24.3 million) and 11.2 per cent for women (12.4 million). However, these only refer to the lower level skills and not those of professional and more qualified workers. 8.23 According to our categorization, in 1993-94, approximately 2 per cent of the population had predominantly formal skills, while 8.2 per cent of the population had predominantly informal skills. The corresponding shares among the labour force were 4.2 and 15.3 per cent.

Skill Base of Unemployed, 1999-2000 8.24 The NSSO Sur vey on Employment and Unemployment (1999-2000) had sought information on the skill levels of the unemployed only. The results showed that in rural areas, only 16.4 per cent of the male unemployed workers and 18.8 per cent of the female unemployed workers possessed specific marketable skills. The percentage for unemployed male workers in urban areas was almost identical to that in rural areas. However,

a significantly higher proportion of about 32 per cent of the female unemployed workers in the urban areas were reported to possess some skills. On the whole, more than 18 per cent of the unemployed possessed marketable skills.

Skills among the Youth in 2004-2005 8.25 The NSS Round 2004-05 collected information about the skill profile of the youth (15-29 years) as to whether they had or were undergoing any formal or nonformal training. Non-formal training includes both hereditary and other sources. Formal vocational training is the training that took place in educational and training institutions which followed a structured training programme and led to recognized certificates, diplomas or degrees. 8.26 It is estimated that, on the whole, only about11.5 per cent of those in the age-group 15-29 have received (or were receiving) any training, whether formal or informal. Of those with informal or formal skill training, 33 per cent have received or were receiving formal training accounting for 11 million. A total of 3.9 million persons in this age group (about 1 per cent of the total) were

192

The Challenge of Skill Formation & Development

Table 8.2 : Skill Levels of Population in the Age Group 15 -29, 2004-05 (in million) Skill

Rural Male

Female

Urban Total

Male

Female

Total Total

Male

Female

Total

Receiving formal training

1.1

0.5

1.5

1.7

0.8

2.4

2.7

1.2

3.9

Received formal training

1.5

1.2

2.7

2.6

1.8

4.4

4.1

3.1

7.1

Formal

2.6

1.7

4.3

4.2

2.6

6.8

6.8

4.3

11.1

Hereditary

5.9

3.1

9.0

1.5

0.7

2.2

7.4

3.8

11.2

Others

3.8

2.9

6.7

3.0

1.3

4.3

6.8

4.3

11.0

Informal

9.6

6.1

15.7

4.6

2.0

6.6

14.2

8.1

22.3

88.3

88.9

177.3

40.4

36.1

76.5

128.7

125.0

253.7

101.4

97.7

199.1

49.4

41.0

90.4

150.8

138.7

289.5

No training Total Source: ibid

receiving formal vocational training while about 2 per cent received formal vocational training, constituting about 3.8 per cent of the population with formal training.

Tamil Nadu (7.6 per cent), Himachal (5.60 per cent) and Gujarat (4.7 per cent). The lowest incidence of formal training was in Bihar (0.5 per cent).

8.27 Gender differences in skill training are strikingly significant, among both the informally as well as the formally trained. A lower proportion of women (8.9 per cent) than men (13.9 per cent) in both the rural and urban areas received vocational training (formal and informal). Formal skills were confined to 3.1 per cent women in this age group, compared to 4.5 per cent men. Considering the youth with informally acquired skills, 5.8 per cent of women had informal skills compared to 2 9.4 per cent of men (Table 8.2).

8.30 Among those trained or undergoing formal training in the country, Maharashtra accounted for 21.7 per cent share which was three times its share of India's population. However, Kerala accounted for 12.2 percent share that was four times the share of its population. Tamil Nadu had 11.3 per cent share in the skilled youth population that was two times its share in population. Gujarat and Andhra Pradesh too have a relatively higher share of skilled population in 15-29 age groups. Thus, the southern and western states form a continuous zone accounting for 63 per cent of the formally trained people in the country. These are primarily the states which have either more industries, a higher level of education, or a higher availability of training infrastructure and training capacity both in the public and private sectors. It must however be noted that even the highest achiever state (Kerala) has only 15 percent of its youth with some formal training. This points to the large uncovered gap in such a basic capability as some formal training in skills for the vast mass of the country's working poor. This yawning gap would be still wider if only the informal sector is considered. Such a situation calls for urgent attention to the need of adequate provisioning of formal skill training for the vast mass of the working poor subsisting in the informal sector.

8.28 Urban/rural location provides another element of difference. While only 2.1 per cent of the youth population had acquired (or was acquiring) formal skill training in rural areas, this percentage was much higher at 7.6 per cent in urban areas. This difference, however, does not persist with respect to informal skill acquisition (somewhat higher at 7.9 per cent of the youth population in rural areas, compared to 7.3 per cent in urban areas). 8.29 The pattern of skill acquisition varies considerably across the states as well. We have focused (Table 8.3) on formal skill acquisition. The largest share of the youth population with formal skills was in Kerala (15.5 per cent), followed by Maharashtra (8.3 per cent), 2

In 1993-94, approximately 3.4 per cent of persons in the age group of 15-29 years had predominantly formal skills while 12 per cent of

population had predominantly informal skills. These cannot be strictly compared with 2004-2005 as the criteria of skill are different. 193

The Challenge of Employment in India

Table 8.3: Percentage of Persons in Age-group 15 - 29 Years with Formal Training among the States, (2004-2005) State

Share (%) in Total Trained Persons

Kerala

12.2

15.5

1.3

12.6

Maharastra

21.7

8.3

Tamil Nadu

11.3

7.6

Union Territories

trained people, belonged to the unorganised sector. This shows that the organised sector is, for some reason, unable to absorb a majority of the formally trained youth who find a place in the unorganised sector. Given the characteristics of the formally trained at this point of time, these persons undoubtedly form an upper segment of the unorganised workforce.

Percentage of Persons with Training in the Age Group

Himachal Pradesh

1.0

5.6

Gujarat

6.6

4.7

Haryana

2.8

4.5

Delhi

1.7

4.1

Punjab

2.8

4.1

Uttaranchal

0.8

3.9

Chhattisgarh

2.0

3.5

Andhra Pradesh

6.6

3.2

Rajasthan

2.5

1.7

West Bengal

6.9

3.2

Karnataka

4.6

3.1

Madhya Pradesh

3.4

2.2

J&K

0.4

2.0

Orissa

1.9

1.9

Uttar Pradesh

6.9

1.7

Assam

0.8

1.4

North-east

0.4

1.3

Jharkhand

0.8

1.3

Bihar

0.8

0.5

Total

100.0

3.9

8.32 Among the informally trained, 17 million were in the informal sector, compared to 1.9 million in the formal sector. As a percentage of the workforce, only 2.5 per cent of total unorganised sector workers had formal training while 12.5 per cent had informal training. In the formal sector, 11 per cent of the workers had formal training and another 10.4 per cent had informal training. It appears that a range of formal skills can be absorbed both in the upper segment of the informal sector as well as in the formal sector. However, due to stagnant or dwindling opportunities of employment in the formal sector, a majority of such workers seek and find refuge in the informal sector.

Source: ibid

Formal Training within Informal & Formal Sectors 8.31 The estimates of formal/organised and informal/ unorganised sector workers as per 55th and 61st Rounds of NSSO Surveys show that more than 86 per cent of the employment was in the unorganised sector. Based on the definition of unorganised sector as proposed by it, the Commission estimated that, 135 million workers in the sector were in the age group 15-29. Among the 5.4 million workers who received formal training in this age group, 3.4 million, accounting for 63 per cent of the total

8.33 Among the youth in the age group 15-29 years about 53 per cent were workers, 3 per cent were unemployed, 20 per cent attended educational institutions and 24 per cent were non-workers. While 11.5 per cent of all the youth received vocational training, about 17 per cent of the unemployed and 16 per cent of the workers did so. Among the workers 22 per cent of the regular workers and 16 per cent of the self employed received training. Across employment status, formal training is the highest for regular workers, followed by the selfemployed, and the lowest among the casually employed. Non-formal training is, however, the highest among the self-employed followed by the regularly employed and then the casually employed. It is noteworthy that the difference in informal training status across activity status is much smaller than formal training status (Table 8. 4). 8.34 One can see that this pattern replicates itself across both the informal and formal sectors, though the level of formal as well as overall training is higher in the organised sector. 8.35 The share of those with formal skills across industrial categories also indicates that there are certain industries, in both the unorganised and organised sectors,

workers with any skill are more prevalent in the unorganised sector. The analysis also shows that the share of those with formal skills is negligible in several sectors including agriculture and private households with employed persons.

Total

Males Unorganised

2.6

12.9

15.4 (86.9)

10.1

10.7

20.8 (13.1)

Total

3.6

12.6

16.1 (100)

Unorganised

2.3

Organised

8.36 Industries in which formal skills are low but the percentage of workforce with any skill is very high, such as manufacturing, construction, trade, hotels, and community and personal services are clearly those requiring prima facie expanded formal training systems.

Females Organised

11.7 14.03 (91.5)

14.2

9.4

23.61 (8.5)

Total

3.3

11.5

14.84 (100)

Unorganised

2.5

Education & Skill Acquisition

Persons Organised Total

12.5

15.0 (88.4)

11.0

10.4

21.4 (11.6)

3.5

12.2

15.7 (100)

Source: ibid

which absorb more formal training. This is evident by the fact that the share of the workers with formal skills is higher in Health & Social Work, Real Estate, Finance, Education and Public Administration. It is, however, interesting to note that the share of the formally trained in a few sectors such as Education, Public Administration and Construction is estimated as being higher in the unorganised sector. In the case of manufacturing, although formal skills are more prevalent in the organised sector,

8.37 Non-formal training is higher among those with lower levels of education (up to middle) and declines thereafter. On the other hand the proportion of formally trained persons is higher among the higher educated youth. The incidence of formal skill training was only about 0.2 per cent among the illiterate youth, rising to 17.5 per cent among those with graduation and above (Table 8. 5). The difference by gender in this pattern is not high, though men at all the levels of education tend to have a higher incidence of training. 8.38 74 per cent of the formally trained persons have higher secondary or higher levels of education while 78 per cent persons with informal skills have middle or lower level of education. The issue therefore is not that persons

with low levels of education cannot acquire skills, but that our existing training systems are preferentially oriented towards providing formal training only to persons with higher levels of education. Most vocational training programmes, including the ITIs, require at least secondary or higher secondary levels of education to be able to enrol in the programme. 8.39 The education-skill nexus prevails both within the unorganised and organised sectors. But as one might expect, there are some differences. In the organised sector 94 per cent of formally trained workers had secondary or higher educational levels while in the unorganised sector, this percentage was lower at 77 per cent i.e. in the unorganised sector slightly less than a quarter of the formally trained workers had middle or lower education. This percentage was higher in the case of women among whom 30 per cent of the formally trained workers have middle or lower education (compared to a figure of about 20 per cent for male workers).

Trades & Formal Training 8.40 The NSSO provides information regarding the trades for which formal skill training has been provided to the persons in 15 - 29 years age group. 8.41 The most sought after field of formal vocational training was 'computer trades' (nearly 30 per cent). For men the next most popular trades were electrical and electronic (18.2 per cent), followed by mechanical engineering (12.3 per cent), driving (9.4 per cent), civil engineering (4.7 per cent), health and paramedical (4.3 per cent) and office and business work (4.1 per cent). Among women there was concentration of vocational training in computers followed by ‘textile related trade’ (22 per cent). The next most popular trades among women are 'health and paramedical' and 'office and business work'. While the overall preferences were not very different among men in rural and urban areas, the demand from rural females was a little different. Among female youth in rural areas, the first preference for vocational training was 'textile and related trades' (31 per cent), followed by 'computer trades' (21 per cent), and 'health and 3

paramedical trades' (10 per cent). Among urban women it was 'computer related trades' (39 per cent) followed by 'textile related' (18 per cent) and 'health and paramedical' trades (9 per cent). 8.42 An analysis of formal training among workers in the organised and unorganised sectors shows that there are a few trades where training is concentrated among both organised and unorganised sector workers. However, there are a handful of trades where the incidence of formal training is higher in the informal sector. These are: textile related trades; handicraft/artisan/cottage based production; and driving and motor mechanic work.

Poverty & Formal Skills 8.43 Poverty is undoubtedly a significant barrier in acquiring skills. A poor or very poor person has hardly any chance of acquiring formal skills. The incidence of training is fairly high only among the middle and high income groups. Our analysis shows that 7.5 per cent of the middle and 17.6 per cent of the high income groups were formally trained. Such a systematic association between income and training status is not the case with non-formal training which is fairly dispersed across the lower income groups. It is quite clear that while, on the one hand, any formal training system has to overcome the barrier posed by the economic status of the potential trainee, on the other hand, possession of informally acquired skills does not provide workers a way out of poverty.

Social Group & Formal Skills 8.44 The relationship between education levels and skills also varies across social groups. The share of persons with formal skills in the age group of 15-29 years increases along the socio-economic ladder- STs (1.4 percent), SCs (2.8 percent), OBCs (including Muslims) (3.5 percent) and Others (5.5 percent) in that order. Indeed, it is only the general caste categories for whom the incidence of training is higher than the average of 3.8 per cent. As far as informal skills are concerned, these are the highest among OBC persons (who form a large proportion of

However, in spite of the improvement in the educational profile, there has been a fall in the level of overall skills, during the 11 year period

for all categories of education and sex except for higher secondary and above. 196

The Challenge of Skill Formation & Development

non-agricultural self-employed workers) and relatively the lowest among persons belonging to the general caste groups.

Training Providers & Types 8.45 The NSS survey also enquired into the institutes currently providing formal training. The Industrial Training Institutes (ITIs) and the Industrial Training Centres (ITCs) constitute the largest formal training base for about 7.88 lakhs persons. Vocational education schools offer around 2 lakhs training places. Institutions affiliated to the UGC and the polytechnics provided about 6.15 lakhs training places. About 2.2 lakhs persons were being trained in tailoring, embroidery and stitch craft. Other details are provided in Table 8.6. Altogether, 3.92 million persons were receiving formal training at the time of the survey. 8.46 The formally trained in both the formal or organised and informal or unorganised sectors have almost similar training background (Table 8.7). For example, of the formally trained in the unorganised sector 24.8 per cent come from the ITIs. The corresponding figure in the organised sector is 22.4 per cent. At the other end, 4.1 per cent and 3.8 per cent of the formally trained come from the vocational schools in the case of unorganised and organised sectors respectively. There are a few differences, however. A higher proportion of the trained workers in the organised sector are from the UGC institutions and the polytechnics. On the other hand, a higher proportion of those trained in tailoring, embroidery and stitch craft, handloom, and handicraft are in the unorganised sector. 8.47 The source of formal training is quite different for young men and women. While about 45 per cent of the formally trained men received their training from ITI/ITC, Polytechnics, or UGC recognized institutions, this percentage was only 15.8 for women. On the other hand, 27 per cent of women received training from such institutes as for tailoring, stitch craft and embroidery; nursing; medical training and teachers' training. 8.48 Ministry of Labour and Employment (MOLE) estimates that there are only 2.5-3 million vocational education and training places available in the country.

Our direct estimates are that about 3.8 million were undergoing formal training at the time of the survey. Given that the duration of such training is often less than a year, we have estimated the annual training capacity to be about 5 million. Out of these, very few places are for those with low levels of education. While, as shown earlier in this chapter, the overall formal skill levels are very low, the large numbers of people who drop out of schools, in particular, do not have the necessary education and skills to be productively employed in the economy. This is undoubtedly a very serious challenge to the current growth and development process.

Demand for Training 8.49 There is no systematic assessment of the demand for training in the unorganised sector of the economy. We have examined the recent characteristics of the workforce in the organised and unorganised sectors, including those as the average education level, technical education, formal and non-formal skills and growth rate of employment. Our primary focus is on the segments of the workforce which have comparatively low levels of education, and which are currently with or without (formal/non-formal) skills. Among these segments, those with a fairly high incidence of skills (predominantly nonformal) and rapid growth of employment are clearly those on which formal training initiatives would need to focus. 8.50 Our analysis identifies the following trades on a prima facie basis as those in which an intensive effort to expand training would be required: Construction Workers, Stone Cutters; Salesmen, Shop Assistants; Transport Equipment Operators; Tailors, Dress makers, Sewers, Upholsterers,; Production, Related; Carpenters, Cabinet, Related Wood Workers; Tobacco Preparers, Tobacco Product Makers; Hair Dressers, Barbers, Beauticians, Related; House Keeper, Matron, Steward, Cooks, Waiters, Bartenders; Stationary Engines, Equipment Operators, Material Handling, Loaders; Plumbers, Welders, (Sheet Metal, Structural, Metal Preparers), Erectors; Painters; Artists and Journalists. There are other sectors/segments which are also growing rapidly but where current levels of training are low. Examples of these trades are: Maids, Related House keeping Service; Professional Workers, Others; Building 197

Caretakers, Sweepers, Cleaners, Related. The potential/ need for training in these trades/sectors needs to be carefully examined.

Regional Dimensions of "Demographic Dividend" 8.51 A strong rationale for strengthening formal training capacity for the informal sector workers arises from the increasing requirement for skilled and semiskilled labour from the rest of the world. India currently has a large emigrant worker population, of whom a large

percentage consists of such workers. It is anticipated that in the years to come, with the projected increase in India's labour force and the projected deficits in labour supply in developed regions/countries, Indian skilled/semiskilled workers might play an increasingly significant role in meeting the international skill deficits. 8.52 The Commission, as part of its work, has projected the increase in age group wise labour force till the year 2017, at the state level. It is estimated that between 2006-07 and 2016-17, 52.9 percent of the total 199

The Challenge of Employment in India

increase in labour force and 81.6 percent of the increase in the young labour force (15-29 years) will be in the Eastern and Central states (M.P., Chhatisgarh, Jharkhand. Bihar, Uttar Pradesh, West Bengal, Orissa, Assam and the North Eastern states), while the Southern and Western states will contribute only 28.9 percent of the total increase in labour force and -2.6 percent to the increase in the young labour force. The details are given

in Table 8.8. It is to be noted that at present, 57.1 percent of the formal training capacity is in the latter group of states whereas the former group of states has only 28.1 percent of the training capacity. Even in the private and NGO sectors the training capacity follows a similar geographical pattern. It follows that a major effort will have to be made to boost training capacity in the lagging states, if the country is to reap the so-called demographic dividend.

Total - South & West (1+4+6+7+9+13) Total - East & Centre (2+3+8+10+14+15+ 16+17+19) All States

* As on 31-12-2008 Source: Based on Commission's projections. 200

The Challenge of Skill Formation & Development

Training Targets 8.53 The share of persons having formal training is just 2.6 per cent of the labour force as per the NSS 200405 Survey. Based on the studies sponsored by the Commission which have assessed the demand for skill up-gradation and the review of VET experiences, the Commission would like this capacity of formal training to reach a level of 50 per cent of the labour force over the next three five year plans i.e. by 2021-22. The persons who would be targeted would include potential entrants into the labour force as well as the existing pool of workers whose skills are required to be upgraded. The Commission estimates that if by scaling up the skill development programmes, the annual training capacity can be increased from the present 15 million to 18 million by the beginning of the 12 th plan and 25 million during th the 13 Plan, the target of 50 per cent of the formally trained labour force can be achieved by 2021-22 or within three plan periods. Given the vast size of the untrained labour force as well as its other characteristics, this time frame is realistic. 8.54 The permanent training capacity in the system, however, may not need to be raised beyond 10-12 million workers in the medium term.

Selected International Experience 8.55 The Commission has reviewed international experiences of skill development and training delivery, keeping in view the issues that are important from a developing country context and more specifically from that of enterprises and workers in the unorganised sector. The review shows that the systems of skill development that exist internationally are primarily for the formal sector, as it is the economies dominated by the formal sector that have evolved such systems. In the countries of East Asia, which are characterized as state-led, demand driven systems, it is universalisation of basic education, enlarging the coverage of secondary education and developing a vibrant system of vocational education that laid the foundation for specifically targeting skills designed towards the workplace. Strengthening the educational system and universalizing access to it is thus an essential prerequisite for widespread skill development, particularly when the skill mix needs to change to accommodate the needs of greater integration with the knowledge economy.

8.56 While training systems might be supported by the government, especially in a situation where externalities limit the extent to which private initiative may be forthcoming, it is essential to tailor training to employment as much as possible. Evolving systems of apprenticeship and enterprise-based training that allow trainees to use their skills, with suitable incentives provided to employers as well as the trainees, is essential. Further, training needs assessment requires to be a joint exercise of those who need trained manpower (employers), those who need to be trained (workers) and those that evolve systems and frameworks (the state), as successful experiences demonstrate. 8.57 Further, in rapidly changing economies which also undergo industrial restructuring and retrenchment, large numbers of workers who hitherto belonged to the formal sector would become informal sector workers. Programmes of retraining such as those in China demonstrate that support from the government becomes essential to equip workers to make themselves available for the market by anticipating demand, which might not automatically take place. 8.58 Interesting experiences of programmes designed explicitly for the informal sector in different countries might offer guidelines by which a system for a country like India can be designed. For example, making the local area or district the focus of training programmes for employment as in China will enable matching of the needs of the people with that of the markets. Targeting training towards the poorest households and linking it up with employment in local areas is also a useful initiative for poor informal sector workers. 8.59 However, it needs to be kept in mind that the need for India to achieve a major turnaround in its skill profile in terms of the numbers being talked about means that it is possibly not any unique development experience that might be directly relevant or replicable. This is because the ‘initial conditions’ that obtain in India are very different from those that prevailed in either the OECD countries or the East Asian economies as they went about developing their skill and training systems. These consist, first and foremost, in the preponderance of the unorganised sector and informal employment in the economy, an abysmally low level of formal skill

201

The Challenge of Employment in India

availability even by the developing countries’ standards, despite there exists a fairly elaborate structure of institutions, systems of education and training that caters to the educational and training needs of a small segment of the population. So while international experiences can provide ideas and perspectives on how to go about the formidable task of expanding the skill base of the economy substantially, the design of training structures and processes have to suit the specifics of the structure and dynamics of the economy.

System of Skill Development in India 8.60 In India, skill formation is broadly through general education as a provider of generic skills. Vocational education and training provide marketable industry specific skills for better employability. Other than general education, skill formation efforts consist of: (i) vocational education, (ii) vocational training, and (iii) sector specific programmes to address the issues of skill formation and enhancement. Within vocational training, we can distinguish between the formal and the informal streams both of which take place under the aegis of the government as well as the private and non-government agencies. Broadly, four systems cater to the training needs: the governmental formal training system, the governmental system that focuses exclusively on the informal sector, the non-governmental (private as well as NGO) network of formal training institutions and the non-governmental (mostly NGO-led) principally nonformal training programmes for the informal sector. While we have made the above categorization, the Commission recognizes that these are not watertight compartments.

Governmental Initiatives Vocational Education 8.61 Vocational education remains within the broader school curriculum and involves provision of specific skills to increase the employability of the students on completion of formal education. Vocational training is especially for a particular trade or economic activity and is conducted outside the schooling system. 8.62 There are three categories of vocational education prevalent in India today: at the lower school

stage, at the class 10+2 stage and at the specialised level. The system of vocational education is administered by the Ministry of Human Resource Development. The Commission is of the view that the vocational education system suffers from deficiencies such as a low component of general education, poor linkages between the vocational education and general education streams and between the vocational education and vocational training streams. Since it creates the capability for acquiring skills, the system of general education itself, especially primary education in the context of informal sector, needs to be strengthened in the interests of skill acquisition. Education being a foundational skill, the focus on skills needs to start at the level of basic education through enlarging access and improving quality. It also needs to be noted that the link between vocational education, vocational training and actual employment is not really known, both due to the lack of actual link and due also to the paucity of information from the labour market. This has to be addressed adequately through evolving effective systems of feedback. Vocational Training 8.63 Skill development programmes are undertaken by various ministries/departments, commissions, councils, autonomous bodies and institutions as well as publicprivate partnership bodies. The Ministry of Human Resource Development and the Ministry of Labour and Employment are the two major ministries responsible for skill development. Most of the initiatives by other ministries/departments are sectoral in nature and targetgroup oriented. 8.64 Most of these schemes and programmes are administered at the field level by the departments and agencies of the respective state governments or other nongovernment organisations identified for the purpose. The funds flow downwards and the state governments are usually assigned the task of implementing as well as monitoring the skill formation programmes on a routine basis. Alternatively, the Central Government departments entrust a number of their programmes directly to nongovernment organisations. This presently results in overlapping of efforts in the implementation of the programmes.

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The Challenge of Skill Formation & Development

Formal Training Programmes 8.65 Formal vocational training system demands a minimum level of education, generally higher secondary in the case of the systems coordinated by the MHRD and middle school or high school in the case of the training systems coordinated by the MOLE, which automatically implies the exclusion of those with low levels of education. Polytechnics, under Ministry of Human Resource Development, offer diploma-level courses to meet training needs of manpower for industry at the supervisory level. The All India Council of Technical Education (AICTE) approves diploma programs in engineering and architecture, hotel management and catering technology and pharmacy. There are 1244 polytechnics run by HRD Ministry with a capacity of over 2.95 lakhs offering three-year diploma courses in various branches of engineering with an entry qualification of secondary education. Besides, there are 415 institutions for Diploma in Pharmacy, 63 for Hotel Management and 25 for Architecture. 8.66 The two flagship schemes of Directorate General for Employment & Training under Ministry of Labour and Employment are the Craftsmen Training Scheme (CTS) and the Apprenticeship Training Scheme (ATS). The CTS provides institutional training whereas ATS is a combination of institutional as well as on-thejob training in which trainees are exposed to real life industrial environment. The CTS is implemented through 1987 ITIs run by the state governments. In addition, 4847 ITCs in the private domain implement the CTS on the same pattern as ITIs. 8.67 The government’s training/skill-building efforts, such as the ones outlined above, have not been directed explicitly towards the informal sector, or at least not towards the most vulnerable informal workers. This has also been emphasized by the Second National Commission on Labour, which notes that the structural characteristics of the informal sector require specific interventions that take on board these features. However, the district level studies conducted by the Commission show that a large number of people pass out of ITIs, i.e., those who receive formal training either start their own enterprises or go for wage employment in informal

sector. What is required are training schemes that take on board structural characteristics of the informal sector and target those at the lower ends. Some initiatives that have been targeted at the informal sector are discussed below. Informal Government Training Programmes 8.68 The focus on skill development based explicitly on the needs of the informal sector exists through a range of programmes under the aegis of different ministries of the government. Schemes under the Ministry of Human Resource Development include Community Polytechnics, Jan Shikshan Sansthan ( JSS) and National Institute of Open Schooling (NIOS) [Continuing Education and Distance Learning]. 8.69 The Ministry of Labour and Employment launched the Skill Development Initiative (SDI) in 2007 as a five year project. During this period one million persons would be trained or their existing skills tested and certified under Modular Employable Skills (MES) framework. The objectives of the scheme are: (i) To provide vocational training to school leavers, existing workers, ITI graduates, etc. to improve their employability by optimally utilizing the infrastructure available in govt., private institutions and the industry. Existing skills of the persons can also be tested and certified under this scheme. (ii) To build capacity in the area of development of competency standards, course curricula, learning material and assessment standards in the country. The minimum age limit for persons to take part in the scheme is 14 years but there is no upper age limit. 8.70 The key features of the scheme are: (i) Demand driven short term training courses based on Modular Employable Skills (MES) decided in consultation with the industry. (ii) Central Government will facilitate and promote training while industry, private sector and state governments will train the persons. (iii) Optimum utilization of the existing infrastructure to make training cost effective. (iv) Flexible delivery mechanism (part time, weekends, full time, onsite/ offsite) to suit the needs of various target groups. (v) Different levels of programmes (Foundation level as well as skill up-gradation) to meet the demands of various target groups. (vi) The services of existing or retired faculty or guest faculty to be utilized.

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The Challenge of Employment in India

(vii) Courses would also be available for persons having th completed 5 standard. (viii) Testing & certification of skills acquired informally. (ix) Testing of skills of trainees by independent assessing bodies, which would not be involved in training delivery, to ensure that it is done impartially. (x) The essence of the scheme is in the certification that will be nationally and internationally recognized.

from weaker sections are given a stipend of Rs 500/- per trainee per month. No fee is charged from SC and ST candidates. Entrepreneurship Skill Development Programmes (ESDP) : These programmes are targeted at training unskilled and semi-skilled workers employed in small-scale industrial units in new skills and/or upgrading their technical skills and knowledge. However, some freshly educated unemployed youth also participate for learning the traits/skills of various trades in order to find employment opportunities or for starting their own ventures. Efforts are made to organise tailor made programmes for the skill development of the socially disadvantaged groups, particularly in less developed areas. The target group for these programmes are SCs, STs, OBCs, women, minorities and other weaker sections, These programmes are also called the ‘Out-reach Programmes’ as they are conducted in the rural/ less developed areas. Training programmes are of 6 weeks duration with a training fee of Rs 200. Trainees from weaker sections are given a stipend of Rs 500 per trainee per month. No fee is charged from SC and ST candidates.

8.71 The training under SDI scheme will be provided by various VTPs under Central Government, state governments, public and private sectors and industrial establishments. VTPs will also be required to have close networking with the industry for immediate placement of the trainees. 8.72 A rate of training fee has been proposed. Candidates belonging to SC/ST categories and women will be given relaxation of 25 per cent in training fee. In order to motivate trainees to take the programme seriously, training fees of all those trainees who successfully complete the programme would be refunded to them. Training cost @ Rs 15/- per person per hour would be reimbursed to registered VTPs in respect of those successful persons who got training from it. VTPs would reimburse training fee to the successful candidates. A one time advance of Rs. 3.00 lakhs would be paid to each govt. ITI so that they can start courses under the SDI scheme. Testing fee would be Rs 500/800 which would be reimbursed to all the successful persons who have received training from the approved VTPs. 8.73 The Ministry of Micro, Small and Medium Enterprises (MSME) and its field institutions have been imparting training to the new entrants to the workforce over the last several decades aimed at developing skills, entrepreneurship and managerial capabilities. Some of these programmes are discussed below. Entrepreneurship Development Programmes (EDP): Entrepreneurship Development Programmes are being organised by MSME-DIs as a regular training activity to educate the youth on various aspects that need to be taken into consideration while setting up small scale enterprises. The duration of these training programmes varies from 2 to 4 weeks with a training fee of Rs 100. Trainees

8.74 As mentioned earlier, a number of other ministries/departments are also associated with skill development programmes which cater to the requirements of specific sectors and target groups. The details of such programmes are given in the Commission’s Report on Skill Formation and Employment Assurance in the Unorganised Sector. 8.75 The above review demonstrates that the governmental system for skill development and training, while vast, is dispersed and characterised by overlaps and multiplicity of schemes. Further, while the existent system for the informal sector recognises some obvious needs of the sector such as certification of trainees, accreditation of trainers, broad basing and flexibility of the actual training imparted and linking training to jobs, it is not conceptualized, designed and implemented in a comprehensive and integrated manner. The Second National Commission on Labour faulted the existing systems on these scores which this Commission also seeks

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The Challenge of Skill Formation & Development

to emphatically reiterate. Specifically, it is stressed that the formal and informal systems of skill development need to be integrated with competency based and flexible training allowing easy entry and exit to trainees at different points in their lifetime and being subject to formal systems of accreditation and certification. 8.76 At the level of implementation, the district level studies conducted by the Commission in Sehore, Allahabad, Shillong and Imphal (discussed in the following sections) show that in spite of all the above mentioned schemes, both formal and informal, having been in operation to different degrees in different places, the present facilities to impart skill development to workers are woefully inadequate. For example, in Allahabad, at present only 12 - 15 thousand workers are trained every year with the contribution of the government system being about 55 per cent, the private sector about 30 per cent, and the NGOs accounting for about 15 per cent of the workers. In Sehore, of an estimated 2.18 lakhs workers who require training, the existing capacity can cater only to about a few thousands.

Private Sector Initiatives for Skill Building 8.77 Private sector initiatives can be broadly categorised into four types: first, where private entrepreneurs or corporations establish training centres/ institutes on a for-profit basis; second, where private corporations impart training to people who get absorbed as skilled workforce in their own units; third, where they enter into partnerships with public agencies and become the vehicles for training delivery and sometimes finance; fourth, where corporate houses set up public trusts or foundations with a development agenda to build the capacities of local communities to be self-reliant and create systems that utilize human and physical capital in a sustainable manner as an integral part of their ‘corporate social responsibility’ (CSR) mandate. 8.78 Examples of the second kind of initiative, where skilled manpower trained by a private company is absorbed within the company itself, are by companies such as Group 4 Securitas, Reliance and Kingfisher. Examples of the third kind of initiative, involving publicprivate partnerships, are of the Construction Industry Development Council (CIDC), which has been set up

jointly by the Planning Commission, Government of India and the Indian construction industry. There are also several initiatives where private foundations undertake training programmes as part of the corporate social responsibility of corporations. These include Ambuja Cement Foundation (ACF), ‘Skills Development Initiative’ of the Confederation of Indian Industry (CII), `Livelihood Advancement Business School (LABS)’ of Dr. Reddy’s Foundation, which is the Corporate Social Responsibility wing of Dr. Reddy’s Laboratories, a leading pharmaceutical company of India. 8.79 Private sector initiatives in skill building tend to be more linked to industry demand and hence avoid the wastages associated with supply-led initiatives. However, as has been pointed out earlier, these are likely to be forthcoming only in response to existing demand and where skilling is likely to have a direct link with profitability. For a large segment of workers in the informal sector, these considerations are not enough and their skilling needs go far beyond those that are likely to be addressed directly by the private sector. Some of these concerns are taken up through NGO interventions which are described below.

NGO Initiatives in Skill Building 8.80 NGO interventions range from offering NCVT approved formal ITI courses to a wide range of nonformal courses. Typically, NGOs devise their own curricula, provide their own training and have their own certification procedures. Very often, they have contacts with employers in the neighbouring areas which provide placements for the trainees. It is often also reported that placement in jobs for those trained are high and that trained workers earn higher wages. A review of the working of the activities of the major initiatives of NGOs reveals that there are two types of approaches being followed: (a) training only on basic or upgraded skills and then leave the trainees to seek wage employment or start their own enterprises, and (b) a ‘holistic’ package of skill development, basic entrepreneurship training and assistance in availing credit facilities etc. Some NGOs even `handhold’ the trainees for a certain period. Some of the major initiatives include Goodwill International Association based in Bangalore, Gram Vikas in Orissa,

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Movement for Alternatives and Youth Awareness (MAYA Organic) based in Bangalore and Self Employed Women’s Association (SEWA) based in Gujarat. 8.81 Thus, the non-government initiatives, whether by the private sector or by NGOs, address some of the deficiencies that exist in existing government-led systems. They provide training that is demand led with signals being provided by the market. However, as was noted earlier, going purely by market signals will not address a lot of problems of the informal sector. NGOs adopt a more integrated approach, with different emphasis across different kinds of organisations, but their interventions are too small and dispersed to make a significant difference in terms of the number of workers trained. Further, they suffer from the problems of inconsistent curriculum, lack of certification and standardisation that were noted earlier.

Critical Evaluation & Salient Proposals 8.82 Recently, the role and performance of the existing training system has been extensively reviewed and a number of proposals have been made to strengthen and expand the skill development system in the country. These proposals readily recognize the importance of skill development of the workers in the unorganised sector. However, they focus on the skill requirements of the organised sector. It is recognized that the present training system is supply oriented and is not linked to emerging demand (by the organised sector) for skilled manpower. The proposals, therefore, make various suggestions for strengthening and expanding the present vocational educational and training system in the country. 8.83 The main proposals which we have examined in our report have been made by the Planning Commission Task Force (subsequently incorporated in the Eleventh Plan) and the MOLE Draft Skill Development Policy. In addition, the National Knowledge Commission, the World Bank and the 2008-09 Union Budget also spelled out some proposals. The targets proposed in the various documents perused by the Commission are very general and range from about 15 million to 50 million annually. But in some cases only public sector training capacity or only organised sector worker coverage has been specified and there is a general lack of clarity on the extent of

coverage of the unorganised sector workers. In order to achieve the targets, these reports have mentioned various financing mechanisms and have different emphases on the respective roles of the public and private sectors. Besides, these reports have suggested different apex level organizational structures to address the VET requirements. From the Commission’s point of view, a major lacuna of these reports is that they focus mainly on the needs of training for the organised sector workers (whether formal or informal) and do not assess the existing training systems for the unorganised sector workers. We find that our broad approach and some of our key recommendations as well are similar to that of the Second National Labour Commission. But we have gone beyond the recommendations of the Second National Labour Commission in several important respects.

District-level Studies of Skill Development System 8.84 The Commission’s assessment of the needs of skill expansion in the informal sector makes it clear that these efforts will have to be sufficiently decentralized and grounded in smaller institutions at the local level. We have earlier shown that the institutional training capacity is extremely limited in precisely those regions where the demographic dividend is the highest. However, we have very little information on issues such as formal and informal training capacity, its quality, the felt-need for training among potential trainees, employers, service demanders, and ground level views on how to expand a training system which can cater to this segment. In order to fill this gap, the Commission made an attempt to independently evaluate the existing system of skill development at the district level by commissioning four district level studies in Sehore district of Madhya Pradesh, Allahabad district of Uttar Pradesh, East Khasi Hills district of Meghalaya and Imphal West District of Manipur. 8.85 The studies have emphasised the total inadequacy of training facilities for unorganised workers at the district level. Moreover, the quality of training also leaves much to be desired. The unorganised workers are acquiring training mainly through informal apprenticeships. 206

The Challenge of Skill Formation & Development

8.86 The studies have accordingly called for setting up training facilities at a decentralized level, at least at the block level, to enable such workers to access them. It is felt that the NGOs, PRIs and private sector should be actively associated if the desired expansion in training facilities is to be achieved. In respect of the quality of training, it is felt that skills being imparted through the existing informal system should be certified and linkages between formal and informal institutions should be established. 8.87 The studies have stressed need for identification of master trainers at village, block and district levels, incentivising their training and linking them with formal training institutions. There is a felt need for a well designed training of trainers programme at formal institutions where these master craftsmen could be trained. Provision could be made for a one time grant to master trainers to upgrade their workshops. 8.88 The studies have also called for a nodal agency at the district level to coordinate, implement, evaluate and follow up the skill development programmes. One important recommendation emerging from the studies is that financial support may be provided to subsidise wage losses of unorganised sector workers during their training. As a part of the training strategy soft skills like marketing, communication, attitudinal and behavioural skills should also be imparted. A strategy may be formulated for marketing of the produce of the unorganised sector entrepreneurs, especially the rural entrepreneurs. 8.89 The two studies on the North Eastern region have also suggested setting up of training institutions in specific areas of interest to the two states. 8.90 It thus emerges from these studies that the need for upgrading skills is felt widely both among the rural and urban workforce. For women, even more than men, it is important to establish training facilities which can upgrade skills close to their door-step in a flexible manner. As far as possible, skill development should be linked to certification (formal skills) and improved livelihoods/jobs. The de-centralised training facilities can emerge in alternative ways but their development may need to be encouraged by a district nodal agency, which will also serve as a labour market information centre, keeping

records of potential trainees and trainers. The district agency would also be the appropriate body to do a need/ demand assessment in order to guide skill expansion in the area. The nature of this nodal agency could be state specific and could link with the state level coordinating institution.

Recent Government Initiatives 8.91 We note that, following the recommendations of different reports mentioned earlier, Government of India has recently initiated a major restructuring of the skill development system in the country. The Prime Minister’s National Council on Skill Development (NCSD) has been set up for giving policy directions and periodic review of efforts to address the issue of skill development by expansion of training capacity in a mission mode. The council will be responsible for vision setting and laying down broad strategies for skill development. 8.92 The council will be supported by a National Skill Development Coordination Board (NSDCB) which will be charged with the coordination and harmonisation of the Government’s initiatives for skill development spread across the seventeen central ministries and state governments with the initiatives of the National Skill Development Corporation (NSDC). The Board has been set up in the Planning Commission under its Deputy Chairperson. The NSDCB has thus emerged as the main body in the three tier structure put into place by Government of India which will oversee its skill development policies and bring about an accelerated growth of formal skill acquisition through the public and private sectors. 8.93 The National Skill Development Corporation has been created by the Ministry of Finance as a not-forprofit corporation to support the expansion of private sector initiatives in skill development. The principal function of the corporation will be to provide financial support to private sector initiatives in skill development. 8.94 Recent changes introduced by the Government have been with the purpose of providing greater coherence and coordination to skill development policies and programmes and to provide finance to worthy private sector initiatives. The greater challenge is to assess the

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“demand” and to make the right kind of training available at the grass-roots where informal sector workers live and work. The findings of the district-level studies sponsored by the Commission emphasize the importance of a de-centralised training system going down to the district and the block level. This approach is in consonance with the recommendations of the Second National Commission for Labour calling for block level vocational educational institutions.

Recommendations 8.95 The Commission, in its report on Skill Formation & Employment Assurance in the Unorganised Sector, has put forward a number of recommendations for building a skill development and training system that explicitly focuses on the expansion of VET for the informal sector workers who generally also have low levels of education. Some of the more important recommendations are discussed below.

Organisational Structure 8.96 Given the enormity of the task and the deficiencies in the present institutional infrastructure for skill development in the unorganised sector, the Commission is of the view that the NSDCB should launch a National Mission for Development of Skills in the Unorganised Sector, to support skill development in the unorganised sector. Apart from coordinating the expansion of skill development in the unorganised sector in a mission mode, a certain quantum of funds should be at the disposal of the Mission to support skill development in a responsive mode, focusing upon strengthening of institutional infrastructure, creation of labour market information systems etc. in the manner that is detailed below. 8.97 The main purpose of the NSDC, in the Commission’s view, should be to provide financial support to NGOs and other non-profit organizations engaged in the training of informal sector workers, while the financial needs of for-profit training organizations should be catered to by banks and other existing financial institutions.

Vocational Training 8.98 The Commission views the SDI as a commendable initiative under which there is a positive effort to expand relevant skill training for school drop-

outs and back this up through the development of modular courses, registration of vocational training providers and certification by third party agencies. However, these developments are still limited and are within the framework of a national scheme. There is therefore the need for a national level structure that can provide the backbone to national skill development in lagging areas and address the needs of course development, recognition and accreditation of training providers, and certification. The Commission is of the view that the National Council for Vocational Training (NCVT) may be identified as the primary agency charged with setting of standards, certification of skills and accreditation of providers for all certificate based training for which the minimum eligibility is less than higher secondary education. Alternatively, a new body with well defined statutory responsibilities may be charged with these functions. 8.99 The Commission has also recommended the establishment of a state level structure that will perform the same coordinating functions at the state level which the NSDCB will perform at the national level, within the overall framework and guidelines provided by the Prime Minister’s Council. This body should be fully responsible for making and implementing a training plan at the state level and coordinating and monitoring skill and training initiatives in the state. The State Councils for Vocational Training (SCVTs) should have full responsibility for evolving a framework for curricula development and a certification framework to meet the local needs. 8.100 The expansion of skill development involving millions of people will require coordinated action between the public and private agencies at the local level. The Commission is, therefore, of the view that the skill development programmes for the unorganised sector should be operationalised by a District Skill Development Council (DSDC) which would be the most crucial link in the entire skill development framework. The DSDC will function under the District Planning Committee or Zilla Parishad and will be managed by an executive committee consisting of the major stakeholders in the skills arena at the district level. The main executive of the district skill development agency should be a professional who is devoted full-time to the activities of the agency. The Commission envisages that the DSDC

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will be staffed with competent professionals and technical persons. In order to give greater operational flexibility to the DSDCs, they could be registered as societies or notfor-profit companies.

Vocational Education 8.101 At the apex level, the Ministry of Human Resource Development will continue to coordinate the development of vocational education in the country. However at the district level, the DSDC may be given the task of dovetailing VE with training requirements. As already discussed, the capacity for vocational education needs to be increased significantly. This will have to be accompanied by making the course content more responsive to the market demand. The industry associations may be associated with formulation and revision of course curricula. Links should be established between the vocational education stream and school education as well as higher education. Students should be able to move between vocational and general education streams by providing them with multiple entry and exit options. Public expenditure on vocational education needs to be increased significantly. The NSDCB can perform the task of coordination between vocational education and vocational training components. The states may design their own variants taking regional specifics into account.

Expansion of Skill Development 8.102 The expansion of skill development programmes for the unorganised workers have to be formulated through a combination of public and private initiatives conceived in a broad sense. In the public sector, expansion of training can be through rationalisation, consolidation, strengthening and expansion of the existing schemes that have been functional at the district level for some time now by undertaking new initiatives. Initiatives such as the Cluster Development Programme of the MSME would need to be integrated with such a programme for skill development.

development for the unorganised sector workers has to be seen as an integral part of the livelihood support which includes a number of elements including identification of the activities, credit and technological support, capacity building and backward/forward linkages. 8.104 As shown earlier in this chapter, the governmental system is a very large source of skill training for unorganised sector workers. Almost all large government livelihood promotion and developmental programmes have a training component. The stress is on providing short duration functional training. The advantage of this training is that it is linked to a specific livelihood based activity being undertaken or likely to be undertaken by the individual often with different types of assistance/ handholding. Government programmes rely on formal as well as informal trainers. Moreover, these programmes also reflect PPP mode as training in a number of instances is imparted by NGOs / private providers. 8.105 Further, there are many other livelihood promotion activities which are being carried out with the support of banks and NGOs. Prominent among them are the micro-finance based activities supported through the NABARD-SHG linkage programme. These programmes also support training initiatives. 8.106 The main problems associated with these training programmes are that they are not linked to any standards; their quality is highly variable; there is no standard curriculum; and usually there is no certification. The Commission has recommended that the quality of training imparted under them should be improved and standardized and these schemes be integrated with the training plan of the DSDC. These schemes should also involve formal certification procedures to ensure standardization and minimum standards of quality. Over time, training under these programmes should be linked to the MES framework.

Skill Development Initiative (SDI) & Skill Development Entrepreneurship Consolidation and Strengthening of Training in the Existing Livelihood and Programmes (ESDP) Social Sector Programmes 8.107 The Modular Employable Skills (MES) 8.103 A basic need of the training system would be to link skill development with livelihood promotion. Skill

framework under SDI of the MOLE offers many elements which are appropriate to the development of training

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initiatives for the informal sector. Under the SDI, workers can be trained in formal institutions, or informally trained workers could take up an examination and be certified. Such workers, as discussed above, could be offered facilities to go through a “finishing school” before taking such an examination. Since the SDI and the MES framework can be adopted for training of all informal sector workers, with appropriate care, the Commission is of the view that the SDI should be gradually strengthened and targets under the scheme significantly increased along with adequate budgetary allocations. Larger number of training providers and assessing bodies should be brought under its ambit. 8.108 The Ministry of Micro, Small and Medium Enterprises is focusing on Entrepreneurship Skill Development Programmes (ESDP) in the unorganised sector conducted through Micro, Small and Medium Enterprises-Development Institutions (MSME-DIs). Emphasis is on conducting ‘out-reach’ training programmes in backward areas, particularly for weaker sections of the society. The Commission is of the view that this programme should be steadily expanded as it has the potential to provide relevant skills to a large number of target group beneficiaries in the unorganised sector.

Provision of Formal Training Informally Trained Workers

able to reach out to the informal training system through the district level structure suggested earlier, or through specific schemes such as the SDI, the ESDP etc. The formal apprenticeship can be supplemented by including a component of the specific training, for instance, on technical and theoretical skills. There can be incentives for the apprenticeships in the form of reimbursement of fees charged on completion of the course, low or no fees charged for those from SC/ST backgrounds, and so on. Second, it is necessary to continuously upgrade the skills of master craftsmen/trainers themselves in order to be able to cope with changing technology, fashion and shifting markets. This will need to involve sectoral initiatives that combine skill up-gradation at a higher level with other sector-specific interventions such as the technological up-gradation and initiatives for scale expansion under cluster development programmes. Some of these issues are dealt with by the SDI. But the Commission has recommended a full-fledged programme for taking informal training to the next level, while providing some form of employment assurance during training to the trainee.

Focused Approach Improvement in Clusters

towards

to 8.111 The Commission has made specific

8.109 The largest system of skill development for unorganised workers that is in vogue today is the informal training system in which workers learn some skills on the job from skilled workers/master craftsmen. The main advantage of the system is that the workers combine learning with earning. A major potential constraint in this system is the static skill level of the worker with limited adaptations in a world of changing technologies/ demand. No ‘schooling’ of the skilled worker is possible and he/she only learns while doing. 8.110 In order to address the problems with the existing informal apprenticeship systems at the district level, attention has to be given to the issue of awareness and incentives to those who impart training (master craftsmen) as well as those who receive training (apprentices). First, it is essential that the formal certification systems being developed under the SDI are

recommendations with regard to dovetailing of the existing cluster development programmes in India and the proposed district level skill agency. First, it has to be recognized that a process of skill development focused at the district level has to explicitly take into account the needs of clusters in the district. Effective partnership needs to be established between the DSDC and all clusters in the district. Second, the methodology evolved by the UNIDO and the MSME’s cluster initiatives in generating the conditions for concerted joint action among enterprises, recognizing interdependencies between them and the advantages of joint initiatives, need to be expanded into the skills and training arena. Such initiatives are already in place for marketing and financing and can be easily extended to skills. 8.112 Third, there are several skill development programmes that are organised by leading institutions that serve the needs of the clusters e.g. leather industry. Many of these initiatives cater to limited number of trainees and are often targeted at higher ends of the

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training spectrum. Hence, district level subsidized institutions may be set up under the DSDC in collaboration with cluster actors to train lower level workers in these sectors. 8.113 Fourth, the incentive structures and costs to be incurred by potential trainees have to take into consideration differences between clusters, i.e., artisan, microenterprise based or mixed firm. For example, purely artisan clusters will require co-ordination among artisans and recognition or education about the benefits of training, but costs will have to be borne by state agencies under one of the programmes being undertaken by them. Expenses and infrastructure for training of trainers can come under cluster based artisan improvement programmes that are located in clusters, again jointly under the cluster development programme and the DSDC. In the case of clusters where some larger firms dominate through value chain or subcontracting relationships, a method to divide costs of training by size of firm might need to be evolved along with positive incentives for firms that undertake training.

Employment Formation

Assurance

&

Skill

8.114 In order to strengthen and upgrade (formalize) the systems of informal training, the Commission has recommended that a massive Programme for Employment Assurance and Skill Formation with the aim to develop human capital through on-job-training be launched. The scheme will provide employment to the poor for about six months and offer them formal marketable skills. The proposed scheme may also be considered as a programme for skill formation through apprenticeship and the six months’ job at minimum wages may be regarded as “on-job-training”.

the declared minimum wage for unskilled workers. It will be the responsibility of the employer to provide employment for at least six months to the eligible worker. A mechanism will have to be set up to quickly arbitrate any possible infringement of the terms of this scheme by any of the parties involved. 8.117 Every worker under the scheme would be expected to undergo certification in the designated skill. For this purpose, this programme would be dovetailed with the Skill Development Initiative which is developing course curricula under the Modular Employable Skills Programme and certification norms for a wide variety of skills. 8.118 The scheme is intended for youth in the age group 18-29 with at least primary but less than higher secondary levels of education. Further, it is largely intended to cover poor youth. 8.119 At present, employment and income opportunities are distinctly higher in large towns. On the other hand, the training capacity is the weakest in rural areas, particularly in poorer states. Since the scheme requires building up of administrative capacity in the districts, in the first phase, we may start with urban areas with poorer employment opportunities and cover some 50 non-metropolitan smaller towns with population between 50,000 and 5 lakhs, as pilots. This may be followed by the other segments of the population, such as the eligible youth in the rural areas and larger towns.

8.115 All employers willing to provide on-job-training would be registered by the proposed SDS in its MIS. All workers seeking training in specific areas of their choice would also be registered under the scheme. The allotment of workers to employers/trainers could be by mutual agreement or through employment exchange/ placement centres in the district.

8.120 The total financial provision per worker would be Rs 10,000/- which would cover (a) about six months of pre-or post-certification on-job-training/employment for which the employer be provided Rs. 50 per day as subsidy towards stipend being paid to the worker (b) Rs 500 as the cost of certification, as provided under the SDI; (c) Rs. 1000, as cost of training/incentive to the provider/employer. The worker would have the flexibility of receiving training either pre or post-certification, or both. However, the subsidy towards the stipend would be backended in the case of the former; i.e. the employer would receive the stipend subsidy only if the worker is certified.

8.116 All employers/trainers would provide on-jobtraining to the worker and a daily stipend not less than

8.121 As indicated above, the programme requires a one time financial outlay of Rs. 10,000 per worker, which

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is the same as that provided under the NREGA. A provision of Rs 10,000 crores over five years for this project would thus ensure additional training-cumemployment to one crore persons through this mechanism, expanding the present training capacity by 2 million per year under the programme.

Support to and Synergy with Private Initiatives 8.122 There are, as we have seen, a vast number of private initiatives to support skill training. These include in-house training by corporates, private for-profit training initiatives and private not-for-profit initiatives by Foundations, Trusts, NGOs etc. The government’s approach towards these initiatives should be to provide them the maximum opportunity and flexibility for growth. While the public sector will no doubt like to rely on NGOs/private agencies to front-end its training initiatives, special efforts should be made to preserve the autonomy of those institutions which are trying to develop innovative models of training for the unorganised sector workers. Support may be provided for such initiatives as well as other not-for-profit initiatives, through subsidies for capital costs or coverage of financial deficits, with proper incentives to expand their outreach among the weaker sections of the unorganised sector workers. The Commission has already envisaged such a role for its proposed National Fund for the Unorganised Sector. This function must also be extended to the NSDC.

levels. Third, programmes should address the special constraints faced by women in participating in training. This includes absence of mobility, need for child care and gender segregation. The training itself should mainly comprise modular, short-term courses with flexible entry and exit options and mobile training provisions. Fourth, training women only in gender stereotyped activities has both specific and general ramifications, since such training not only would perpetuate gender segmentation, but also often leads to over saturation of trained women in low paid work. Hence, women must also be encouraged to train for “hard” technical skills as well in areas such as agriculture, where their role as producers is far more significant today. Admittedly, NGOs may have a better niche in doing this.

Financing 8.124 The significant expansion in VET will require a considerable up-scaling of financial resource commitment by the government and by the private sector and both these entities have already signalled their commitment to increase their spending on skill training. The present commitment of the Central government is to increase expenditure on VET to Rs. 22,800 crores th during the 11 Plan. In addition, a sum of Rs. 300 crores has been committed to the NSDCB and Rs. 1000 crores has been allocated to the NSDC. A large part of this allocation will go to support strengthening of VET infrastructure for training of workers for the organised sector through ITIs and Polytechnics.

Addressing Gender Issues in Skill 8.125 This Commission has advocated that: (i) a sum Development 8.123 The Commission believes that the proposed expansion in training systems should pro-actively foster gender sensitivity and gender equity in training through proper design, advocacy, and incentives. Four broad sets of issues may be addressed here. First, the content of training programmes for women may need to integrate components of literacy, numeracy, business skills, confidence skills in a bigger way. Second, training for women is likely to be more effective when done in a formal, participator y way through groups. The Kudumbashree initiative in Kerala shows that this can be coordinated fairly effectively at the district or block

of Rs. 5000 crores be allocated to the NSDCB for a National Mission for Skill Development in the Unorganised Sector for supporting the cost of setting up and operating the proposed institutional infrastructure for expansion of training initiatives at the district level and, (ii) at least a doubling the existing training schemes under the SDI and MSME (Rs. 1000 crores); and (iii) Rs. 10,000 crores for the proposed Employment Assurance Scheme. In effect, the Commission’s proposal imply a significant increase (to about Rs 40,000 crores) in the financial allocation for VET over the next five years. Given the strong positive externalities emerging from expansion of training, especially of the unorganised

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sector workers, this increase can be considered necessary. Moreover, if necessary, the resources can be raised through a levy on the turnover of companies to help partially meet the cost of skill development programmes. Tax concessions may also be extended for making contributions for skill development. 8.126 The Commission has also made detailed recommendations concerning the training infrastructure, training of trainers and labour market information system in its report on Skill Formation & Employment Assurance in the Unorganised Sector.

Conclusion 8.127 The Commission has focused on the formal training of workers who are either employed in the unorganised sector, or are likely to join the unorganised sector as wage or self-employed workers. These are typically those with low levels of education and economic wherewithal, a proportion of whom have acquired skills

through informal training. The characteristics and training needs of this segment of the workforce are quite different from the upper segment requiring significantly different approach – in terms of content, institutional delivery etc. 8.128 Expanding the training for such workers would require active participation of different types of stakeholders – government departments, trainers, private training providers, NGOs and employers. The financing and cost recovery models for such training would also be quite different. The Commission is of the view that if its recommendations, including the proposed National Mission, a fresh institutional approach and the Employment Assurance Programme are adopted, it would be possible to expand training to cover 50 per cent of the labour force within a reasonable time frame. This, in turn, would not only provide a firm anchor to the growth process, it would also help in spreading the benefits of growth to a much wider cross-section of the work force.

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9

Public Employment Programme for the Unorganised Workers: The Case of NREGA Introduction 9.1 Programmes to create direct employment opportunities for wage workers through public works have in the past focused on generation of supplementary employment opportunities, especially during lean periods. They have been considered as an important component of the antipoverty strategy. These programmes are expected to create durable assets for the community and thus enhance further economic activities. Wage employment programmes also push up demand for labour and thus exert an upward pressure on the market wage rates by attracting people to public works programmes, thereby reducing supply of cheap labour, often at wages that would not even meet their bare basic needs. 9.2 Consistent with our approach for an employment-centred development strategy that would level up the informal economy, we see public employment programmes as an integral part of planning and policy. Apart from the advantages that would accrue to the unemployed, under employed and the poorly employed, such programmes will also have a positive macro 214

economic impact via the increase in effective demand from the hitherto poor and vulnerable segments of the population. Viewed in this perspective, the enactment of the National Rural Employment Guarantee Act (NREGA) is a historic step in the Indian context. In this chapter we examine the functioning of this rights-based employment programme with a view to strengthen its developmental potential and put forward a set of recommendations. 9.3 In the same vein, the Commission is also of the view that there should be an urban counterpart to the NREGA. The principles and framework of such an urban employment programme could be the same but with due diligence to the characteristics of the urban labour market as well as the nature of urban context. The Commission is of the view that there exists considerable scope for such a programme. It could be an ideal instrumentality for: (i) construction of publicly funded low cost housing that would, first and foremost, target the slum dwellers, (ii) provide electrification, water supply and sanitation facilities to such housing areas, (iii) introduce slum improvement programmes

Public Employment Programme for the Unorganised Workers: The Case of NREGA

National Rural Employment Guarantee Act 9.4 The National Rural Employment Guarantee Act, 1 2005 (NREGA) is a major step in the direction of providing security of employment to rural workers by providing at least one hundred days of guaranteed wage employment in every year to every household whose adult members volunteer to undertake unskilled manual work. The Act marks a historic step towards recognising and ensuring work as a right of the people. The programme was launched in February 2006 in 200 districts and has been extended to all the districts in 2008. It aims to provide employment through public works, which lead to development of infrastructure, land development, irrigation, and construction. The main aim is to empower labour by making employment a right by which the rural workers can demand employment. From a development policy perspective, the NREGA can also be viewed as a distributive employment strategy, there by, heralding a new deal for the country’s poor and a foundation for inclusive development. 9.5 The Commission has viewed NREGA as an important component of an employment- based growth strategy. Based on preliminary observations and analysis, the Commission has made a number of recommendations relating to the programme and has also asked for its extension to urban areas (NCEUS 2007a, NCEUS 2008c). In order to get greater insights into the working of the programme, the Commission has made field trips to a number of states to study the NREGA. It has also commissioned a few studies on the programme. G. B. Pant Social Science Institute undertook two such state 1

2

3

studies in Himachal and Orissa, under the overall coordination of Prof. Jean Dreze in 2008 at the instance of the Commission. Together these two studies are referred to in this report as GBPSSI (2008). Subsequently, Prof. Dreze and his team conducted studies in six states as requested by the Commission covering ten districts spread over six North Indian states viz., Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Rajasthan and Uttar Pradesh. Another study was conducted by Centre for Economic and Social Studies (CESS), Hyderabad covering two Andhra Pradesh districts and was coordinated by Prof. S. Galab. These two studies are referred to in this chapter as GBPSSI Study (2009) 2 and CESS Study (2009) respectvely. Apart from these field studies, NCEUS has also supported a Conference on NREGA. The report of the Conference prepared for the Commission is referred in this chapter as IHD 3 (2009) . Drawing from these studies and the Conference Report, the present chapter analyses the progress and the functioning of NREGA and brings out critical implementation issues for the attention of the policy makers in order to enhance its effectiveness in various parts of the country.

The Context & Contours of NREGA – A Review 9.6 NREGA is visualized as a first step towards the realization of the economic right to work as envisioned in the Directive Principles of State Policy. It recognizes Article 39, according to which the State must ensure that “citizens, men and women equally, have the right to an adequate means to livelihood” and Article 41 whereby “the State, shall within the limits of its economic capacity and development, make effective provision for securing Right to Work…” (IHD 2009). The Employment Guarantee Act based on the right-based approach, was

Acronyms NREGA, NREG, NREGS are used interchangeably in the literature, all meaning the public employment programme under National Rural Employment Guarantee Act (NREGA). The GBPSSI Study (2009) covered ten districts - Bihar (Araria & Kaimur), Chhattisgarh (Surguja), Jharkhand (Koderma & Palamau), Madhya Pradesh (Badwani & Sidhi), Rajasthan (Dungarpur & Sirohi) and Uttar Pradesh (Sitapur). The survey was initiated by the G B Pant Social Science Institute, Allahabad under the guidance of Jean Dreze with additional support from the Department of Economics, Allahabad University. Field work was conducted in May-June 2008. Its findings are referred to as GBPSSI (2009), and are additionally reported in Dreze and Khera (2009) in Frontline and Dreze, Jean (2009). The CESS (Hyderabad) Study by S. Galab, P. Pruthvikar Reddy, E. Revathi and C. Ravi was also supported by NCEUS. It covered the two districts of Kadapa and Mahaboobnagar in Andhra Pradesh and is referred to as CESS (2009). The findings of the "NREGS in India: Impacts and Implementation Experiences" Conference, organised by Institute for Human Development (IHD), New Delhi and Center De Sciences & Humanities (CSH), are referred to as IHD (2009). 215

The Challenge of Employment in India

seen as a measure to ensure the larger fundamental right to life with dignity. 9.7 Past experiences show that India’s poverty alleviation strategy, including the National Rural Employment Programme (NREP), Rural Labour Employment Guarantee Programme (RLEGP), Jawahar Rojgar Yojana ( JRY ), Employment Assurance Scheme (EAS), Sampoorna Gramin Rojgar Yojana (SGRY) etc leaned towards wage employment programmes. With specific reference to NREGA the argument has been to treat it as a component of a full employment strategy for India (Bhaduri 2005, IHD 2009). By ensuring employment for a minimum number of days at minimum wages, the thrust was on ‘employment first, with growth as an outcome’, rather than the vice versa (Bhaduri 2005). It is also argued that this path towards full employment alone can ensure the ‘economic content of participatory democracy’, and allow for “development with dignity” (ibid). 9.8 The rationale for adopting wage employment programmes by the Government during the last many decades has been that they provide steady opportunities for employment to those who are unemployed or underemployed. Beneficiaries include those who have labour as the only asset under their control (owning neither capital nor skills), and are unable to take even the minimal risks associated with self-employment. State assistance in the form of such wage employment then acts as a valuable safeguard against risks and vulnerabilities. Other positive externalities envisaged due to the adoption of wage employment programmes include the upward pressure on market wages because of the higher wages from the programme and organizing the rural poor beneficiaries of the scheme into collectives. 9.9 The potential of the NREGA to lead the economy towards a labour-intensive growth path, especially in the light of the low and declining growth rate of productive employment, needs to be emphasised in this context. The wage-work programme needs to be seen in a long term perspective, with a strong planning component, dovetailing it with the ongoing development efforts, incorporating decentralised planning and implementation, skill training, maintenance of public assets

and eventually absorbing wage-earners into mainstream employment. The path towards full employment lies in strengthening the sectors where the poor are located and stabilizing their incomes, improving their asset base, constructing basic socioeconomic infrastructure at the local level, enabling access to paid work opportunities and exerting an upward pressure on market wages (IHD 2009). NREGA as a programme is expected create conditions for realisation of the above outcomes.

An Overview of the Scheme 9.10 NREGA has been envisaged from the perspective of ‘right to employment’ and guarantees 100 days employment at a minimum fixed wage rate, but more importantly it bestows an entitlement. The Act has also identified roles and responsibilities for the Central and state governments, district and block administrations and the panchayats. The onus of guaranteeing 100 days of employment rests with the Government and the applicant can demand for unemployment allowance in case he/she does not get work. Apart from creation of work opportunities, the Act also provides for basic facilities at the worksite namely viz. crèche, safe drinking water, and medical aid. 9.11 The salient features revolve around recognition of the right to work and dignity to work. These include: 

A right-based framework, with employment on demand.



At least one hundred days of guaranteed wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.



Wage payment within 15 days.



Payment of unemployment allowance in case of non-provision of employment within 15 days (unemployment allowance to be at least one fourth of the minimum wage for the first 30 days, and at least one-half of the minimum wages thereafter).

Public Employment Programme for the Unorganised Workers: The Case of NREGA



Priority for ensuring one-third of workers is women.



Mandatory basic worksite facilities – drinking water, shade, medical aid and crèche if more than five children below age 6 are present.



Ban on the use of contractors and machinery and allocation of funds in the ratio of 60:40 for unskilled and skilled/material components of the work ensure the primacy of labour intensive nature of work.



Equal wages for men and women.



Devolution of powers to the Panchayati Raj Institutions.



Mechanisms of accountability and transparency.



Creation of durable assets to strengthen the livelihood resource base of the rural poor.

9.12 It is important to recognize that various stakeholders are involved in the implementation of NREGA and steps, required to be taken, envisage processes to be followed both sequentially and in parallel. The implementation structure of NREGA involves the three levels of government (Central, provincial and local). The participation of the local governments (in three tiers) is vital, particularly the lowest tier as direct people’s participation can play an effective role here. The Act sets out the structure and role of the implementation machinery as well as the monitoring mechanisms. It is also unique in setting out transparency safeguards and providing a role for various autonomous actors like civil society agencies which are also expected to provide information and awareness on the programme and its benefits and also facilitate enrolment of eligible members and engage in hand holding in order to ensure better implementation. Each step in operationalization has its logic and falls within overall perspective of the programme.

A Snapshot of NREGA Over Three Years 9.13 A snap-shot view of the progress of NREGA presented in terms of critical indicators brings out sharp contrasts in terms of state-wise performance. It can be seen that in terms of the households receiving 100 days of employment (7 per cent), the NREGA has a long way

to go. There are significant variations across the states in the per cent of working households as well as agriculture labour households who got employment (Table 9.1). There is no set pattern observed, but poverty concentrated states like UP, Bihar, Jharkhand lag behind several others in terms of the number of days. If one were to see the wage component of the programme, it can be concluded that NREGA has been able to transfer significant resources into the hands of the workers. 9.14 While the above table provides details from secondary data regarding the number of employmentdays created and the amount spent, the NCEUS sponsored studies as well as those by several other scholars have brought out some interesting features of NREGA's functioning and progress in terms of spatial and social variations based on field surveys. In what is discussed below we focus principally on the NCEUS sponsored studies, making some references to secondary data and other field studies.

Demand for Work 9.15 In the GBPSSI (2009) Study of six north Indian states an overwhelming majority of 98% of the sample workers claimed that they desire to fully avail the 100 days of employment provided under the scheme (Table 9.2). However, the same study also revealed that, in practice, very few workers had received 100 days employment. For instance, proportion of the sample workers who reported 100 days of work in the past 12 months was invariably very low - Chhattisgarh (1%), Bihar (2%), Uttar Pradesh (4%), Jharkhand (9%), Madhya Pradesh (19%) and Rajasthan (36%). In Andhra Pradesh too there is high demand for NREG work, with workers expressing willingness to work for a period of 180 days (CESS 2009). This gap is demonstrative of the massive potential for the scheme, and also reflects the pressing need to increase in employment-days to meet the increasing demand.

Reaching the Poor & the Vulnerable 9.16 Given the nature of the programme and its intended objectives, one would be interested to assess whether NREGA is reaching the intended population, who are the socially and economically deprived. Findings

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The Challenge of Employment in India

Table 9.1: State-wise NREGA Implementation Status up to January 2009 State

Percentage of Households Provided Employment to Total Agricultural Labour Households$

1

Total Rural Working Households**

Percentage of Households

Percentage of

Completed 100 days Wage of Employment to Expenditure to Number of Households Total Expenditure Provided Employment

Average Wage Expenditure per Household Provided Job (Rs.)

2

3

4

5

6

Andhra Pradesh

101.1

39.5

5.7

73.7

2907

Assam

262.4

34.4

4.8

63.5

2753

Bihar

65.2

22.4

0.6

64.8

2027

131.1

51.6

5.6

64.3

3979

Gujarat

Chhattisgarh

25.1

8.7

2.6

70.6

1408

Haryana

28.8

3.5

1.6

80.3

5279

1837.7

33.0

5.4

62.3

3506

Jammu and Kashmir

163.5

7.7

1.7

57.4

2246

Jharkhand

274.4

30.6

3.0

52.8

3913

Himachal Pradesh

Karnataka

20.6

9.0

2.4

64.3

2001

Kerala

55.2

9.5

0.6

82.4

2209

167.4

50.8

8.0

60.6

3633

Maharashtra

13.1

5.0

3.1

88.6

3994

Orissa

39.8

12.3

1.8

61.2

2948

Punjab

14.8

3.1

0.4

59.8

2468

1042.8

70.6

20.7

71.3

5565

Madhya Pradesh

Rajasthan Tamil Nadu

89.9

34.4

8.6

95.7

2605

Uttar Pradesh

103.2

14.7

8.7

64.9

4310

Uttaranchal

147.4

13.5

1.4

64.2

2912

West Bengal

56.3

19.2

0.2

65.4

1617

India*

92.4

24.8

7.4

68.0

3438

*Including all the states and union territories $ Agriculture labour households are those households whose principal means of income is agricultural labour. Figures exceed 100 per cent in some cases implying that other types of households also participate in NREGA. ** Worker household means household with at least one worker. Sources: Ministry of Rural Development, Government of India. The total rural worker households and agriculture labour households are estimated from NSS 2004-05 Employment-Unemployment Survey.

Table 9.2: Demand for Work Proportion (%) of sample workers who: Want at least 100 days of NREGA work over the year

98

Have worked for at least 100 days on NREGA in the last year

13

Source: Dreze & Khera (2009) based on GBPSSI (2009) Study

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Public Employment Programme for the Unorganised Workers: The Case of NREGA

from the field studies on the participation of poor and socio-economically vulnerable households (SC, ST and women) reflect that NREGA is reaching its intended target groups of population. 9.17 The GBPSSI Study showed that 81 per cent of the sample households working under NREGA live in kaccha houses, 61 per cent of them are illiterate and over 72 per cent of them do not have electricity at home (Dreze & Khera 2009). 9.18 Further, the CESS Study of two districts of Andhra Pradesh points out the fact that the proportion of landless agriculture labour participating in NREGA is higher than their share in the total households of the villages studied. In the two districts studied, 74 and 60 per cent of landless labour households participated in NREGA. Similarly, it was observed that households who are self-employed in non-agriculture activities have participated in large proportions in NREGA. It is also found that a majority of households participating in NREGA in the two districts of Andhra Pradesh are also from the 'below poverty line' category (65 and 61 per cent of BPL households are in NREGA in the two districts) (CESS 2009). Confluence of these three observations brings us to the conclusion that NREGA is addressing the economic needs of the most deserving and marginalised households.

Participation of SCs & STs 9.19 Majority of the NREGA workers belong to the most disadvantaged sections of the society. Macro data provided by the Ministry of Rural Development (Table 9.3) reveals the state-wise picture of participation of households from SC and ST communities. At the all India level, SC and ST families together account for over 55 per cent of the total employment-days created. While there are annual variations in terms of participation of STs (with expansion in the NREG coverage), there is a steady growth in the participation of SC families over the three year period. 9.20 Field studies also corroborate higher participation from SC and ST families. The GBPSSI (2009) Study of six North Indian states found that 73 per

cent of respondents belong to SC/ST families. The CESS (2009) Study reported that majority of NREG beneficiaries came from the vulnerable social groups (SCs, STs and OBCs), landless agriculture labour households and women. The same study found that participation of SCs and OBCs is more than their respective shares in the total households (ibid). Such conditions reflect the fact that the workers face multiple deprivations and hence NREGA work becomes an important source for sustaining them at the subsistence level. Even in Bihar, benefits reached mostly the target groups and the process was also found non-discriminatory (IHD 2006).

Women's Participation 9.21. One of the successes of the NREGA is that, on average, the participation of women in the programme is higher than the stipulated minimum requirement of 30% (Table 9.4). Women constituted 46% of the beneficiaries in 2007-08. However; there are wide regional variations in the level of participation of women. States like Kerala and Rajasthan, the participation rates for women are much higher than 50%. Tamil Nadu in particular shows women's share in NREGA employment to be 81% (Drèze and Oldiges 2007). Similarly, in Rajasthan, the better performing northern state, Dungarpur district has reported 75-80% female beneficiaries (Ghosh 2006). However, the same cannot be said about many other states. According to GBPSSI (2009) Study of six north Indian states, the statutory minimum requirement of 33 per cent participation by women was not met in Chhatisgarh (25%), Jharkhand (18%), Bihar (13%) and Uttar Pradesh (5%).

Some Positive Benefits 9.22 During the field surveys several positive externalities were identified by the workers who participated in NREGA. They include reduction in distress out-migration, improved food security with wages being channelled into incurring expenses on food, health, education and repaying of loans, employment with dignity, greater economic empowerment of women workers, and sustainable asset creation. 219

The Challenge of Employment in India

Table 9.3: Participation of SCs & STs in NREGA (Person Days) States

Percentage of Person Days to Total Person Days Scheduled Caste 2006-07

9.23 The GBPSSI Study revealed that 57 per cent of the respondents were of the view that overall outmigration from villages in search of employment had decreased. In turn, 57% of the workers admitted that with the onset of NREGA, their previous migration had been avoided (Dreze & Khera 2009). These findings support the trend that workers prefer to work in and around their villages, rather than bear the social and other costs of migrating elsewhere in search of work.

9.24 The GBPSSI (2009) Study also found that wages earned through NREGA had helped workers in financing their food and health requirements (Dreze and Khera 2009) with 69 per cent of the workers reporting that the wages earned being spent on food and 47 per cent of the workers reporting that they had spent the money on illness. Further, more than two thirds of the respondents said that the income so generated had helped in sending children to school (37%), in repayment of debts (34%) and in the avoidance of demeaning and

220

Public Employment Programme for the Unorganised Workers: The Case of NREGA

hazardous work (Table 9.5). A majority (57%) of the workers said that they had used their NREGA wages to buy medicines during the last 12 months. NREGA wages were also used to buy materials for school such as uniforms and notebooks.

agriculture. This has the potential of improving the bargaining power of labour in the long run. Further, women in particular were seen to favour NREGA because of social dignity involved in government sponsored employment.

9.25 Unlike in the case of previous wage employment programmes such as the National Food for Work Programme, while there was delay in wage payments for weeks or months, the GBPSSI (2009) Study of six north Indian states shows that about in 46 per cent of the worksites, respondents were now earning the minimum wage through NREGA (Table 9.6). The NREGA wage has raised the bar for the determination of wages in

Proportion (%) of sample workers who stated that: NREGA is "very important" to them

71

NREGA has helped them to avoid hunger

69

NREGA has helped them to avoid migration

57

NREGA has helped their family to cope with illness

47

NREGA has helped them to avoid demeaning or hazardous occupations

35

Source: Dreze & Khera (2009) based on GBPSSI Study

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The Challenge of Employment in India

Table 9.6: NREGA Workers' Perception of Minimum Wages for Work

9.28 Further, the assets created under the NREGA were found to have productive value by 83 per cent of the respondents in the GBPSSI (2009) Study. Changes in attitudes have also given a fillip to the Sarva Shiksha Abhiyaan, rural infrastructure and rural connectivity (IHD 2009).

Percentage of sample workers who: Knew the minimum wage

48

Percentage of sample worksites where All workers earned the minimum wage

46

Lessons from Variations in Performance

Source: Dreze and Khera (2009) based on GBPSSI (2009) Study

Gender Impacts 9.26 The GBPSSI (2009) Study revealed that a majority of women collected their NREGA wages themselves and retained with them. Further, NREGA employment served as a primary wage earning opportunity for a large section of women. A few women workers claimed to have had alternative sources of income in the past 3 months (Table 9.7). Table 9.7: Indicators of Women's Empowerment Percentage of female sample workers who: Collect their own wages

79

Keep their own wages

68

Earned any cash income (other than NREGA wages) during the last 3 months

30

Source: Dreze and Khera (2009) based on GBPSSI (2009) Study

Other Observed Impacts 9.27 There have also been improvements in the conditions of work at worksites in comparison with those in the past. There is reportedly limited use of machines. Harassment of workers too is seen to have been reduced, most starkly in Rajasthan, according to the GBPSSI (2009) Study (Table 9.8). Complete elimination of contractors from the worksite, however, has not occurred. Worksites in Jharkhand were on the lead in this case, accentuated by the lack of proper implementing agencies in the state. Table 9.8: NREGA Workers' Perception of Worksite Irregularities & Exploitation Percentage of sample workers who reported that: Rajasthan Other States Machines had been used at the worksite

2

8

A contractor was involved

0

35

Workers had faced harassment at the worksite

6

12

Source: Dreze and Khera (2009) based on GBPSSI study

9.29. The performance of the NREGA varies significantly across the states. There are some states where NREGA has managed to achieve its key outcomes very well and which have indeed innovated in many respects. In others, performance has been unimpressive and lack lustre. Given that the overall framework for the NREGA is similar across the states, clearly, the variations in performance depend on factors such as the political and administrative will of the governments, historical background of the state as well as the nature of civil society and public actions around the NREGP. But this also suggests that the state governments which have the responsibility of framing the rules as well as overseeing the actual implementation of the scheme on the ground can “own” the scheme and give it a fillip. There is a lot of scope for state governments to innovate and adapt the scheme according to the local requirements. State specific experiences are important sources for innovations which in turn provide valuable lessons for replication. The relative success of the scheme in some regions, and failure in others highlights the need to properly understand the reasons for inter and intra state variations and to replicate and adopt features of implementation of the better performing states. Below we highlight some of the experiences from the states.

Success Stories 9.30 The performance of the scheme in the state of Andhra Pradesh has been laudable because of strong political will and also because the state has had a rural worker and community mobilization movement. In addition, Andhra Pradesh has successfully employed computerization and e-governance mechanisms for monitoring the scheme. For, example, funds are being transferred electronically; every jobs seeker has got a bank account and wages are paid through bank or post office account; the whole process from job application to registration is computerized (IHD 2009).

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Public Employment Programme for the Unorganised Workers: The Case of NREGA

Table 9.9: Functioning of NREGA in Pati Block of Madhya Pradesh Pati Block Average days of NREGA work in the past 12 months

85

Other sample blocks 41

Percentage of sample workers who: Worked for 100 days during the last 12 months

47

11

Got employed in response to a written application

92

19

One hundred days work

88

50

Minimum wages

67

47

Payment within 15 days

76

55

Percentage of sample workers who were aware of their entitlement to:

Source: Dreze & Khera (2009) based on GBPSSI Study

9.31 In Rajasthan, which has the history of drought relief based public employment and active civil society, the success of NREGA is more impressive compared to other north Indian states. Dungarpur district was able to make NREGA more of a success because of the presence of effective grassroots NGOs and their ability to mobilize the poor. Further, in Rajasthan, the innovative arrangement of having a ‘mate’ supporting worksite management has led to greater productivity of workers, easier worksite supervision and greater transparency in maintaining of work related records. Facilitation of the scheme by the local civil society organisation, the Jagrut Adivasi Dalit Sangathan ( JADS) in Pati block of Madhya Pradesh bears testimony to public action from below to inculcate the practice of work on demand through application, receipts at the time of submission of applications and ensuring the payment of unemployment allowance, if necessary (Khera 2008) (Table 9.9). 9.32 In Kerala, the NREG implementation pivots around the Kutumbashree (Self Help Groups of poor women). These women are not only involved in identifying the public work projects, but also overseeing the implementation. Besides Kerala has also used banks and post offices for wage payment. All these have resulted in high participation rate of women and an overall efficient system. Manifold increase in the number of work days, reduction in distress out-migration, enrolment in schools were observed in a study of 8 states by Indian School of Women’s Studies and Development, New Delhi (IHD 2009). 9.33 In the tribal dominated and backward district of Pakur in Jharkhand, customized information, education

and communication (IEC) activities had a large role to play in awareness generation about the NREGA (IHD 2009). Social audit conducted as a part of “NREGA Watch” of National Institute of Rural Development revealed absence of contractors and machines, kutcha muster rolls, presence of first aid facilities at stone quarries and mines, payment of wages through bank accounts (119,000 labour families had opened accounts in Banks/ Post Offices after NREGA), convergence with health and aaganwadi schemes, better quality of governance and better attendance at gram sabhas (270 out of 284 individuals attended the Gram-Sabha in 2008) (ibid).

Remaining Gaps 9.34 In some states, the scheme has been plagued with teething problems and is yet to take off. Jharkhand faced problems in implementation because of the nonconstitution of Panchayat Raj Institutions (PRIs) in the state (Dreze and Bhatia 2006). Bihar has problems related to shortage of staff, poor infrastructure, low administrative capacity of the state, etc. (IHD 2009). 9.35 Poor awareness levels of workers regarding the scheme and the entitlements can also be cited as a reason for its inability to take off in some regions. In the GBPSSI Study of six states, Rajasthan emerges favourably in this regard, with 90 per cent of workers knowing about the provision of 100 days of work. More than half of the respondents were aware of the minimum wages and the 15 days period within which wage payment should take place (Table 9.10). This can be attributed, as already mentioned, to the state’s active tradition of public

223

The Challenge of Employment in India

Table 9.10: Awareness Levels

digging and women carry out the ‘lead’ and ‘lift’ operations. However, in cases where the women are single employment seekers they are sometimes denied the opportunity because of the perception that they might reduce the group’s productivity.

Percentage of sample workers who are aware of their entitlement to: Rajasthan Other States One hundred days work

90

42

Minimum wages

67

43

Wage Payments within 15 days

74

54

Source: Dreze & Khera (2009) based on GBPSSI Study

mobilisation, state initiated awareness drives and presence of workers’ organisations such as the MKSS. In comparison, the remaining five states where the survey was conducted, less that 50 per cent of the workers exhibited knowledge of the most basic provision of the scheme of employment for 100 days. Further, the demand based nature through which employment is offered under NREGS has still got a long way to go in terms of being operationalised, with 71 per cent of the respondents in the study being unaware that an application had to be submitted in order to gain work. 9.36 Also, the GBPSSI (2009) Study brings out the urgent need for imparting training to Gram Panchayat functionaries, government officials and even specially appointed NREGA personnel such as the Gram Rozgar Sewaks, as their awareness about the scheme and its provisions was found to be wanting. 9.37 In a number of states, low participation of women in the programme is not due to the lack of demand from women but to the social norms that restrict work participation outside the home, especially in states like Uttar Pradesh and Bihar. The GBPSSI (2009) Study reveals that in some parts of Uttar Pradesh, male relatives and Gram Panchayat functionaries showed resistance to women’s participation under NREGA. In Sitapur district of Uttar Pradesh there were many cases where women’s names were not even written in NREGA job cards. Several instances have been reported where women, especially the single women, have been denied access to the programme. The fact that any adult member from the household is eligible to participate is not yet clear to the people and this works against the women who wish to work. In Andhra Pradesh, in many cases the workers are organised as family units where men undertake the

9.38 Thus, there are still several hurdles in most of the states for enhancing women’s participation in the programme, though, as already noted, some states have emerged as clear exceptions. One of the stated objectives of the NREG Scheme is to foster a sense of gender equality and encourage women’s participation in the economic domain. However, such exclusion only leads to reinforcement of the existing social biases against women and goes against the spirit of the Act. Fostering gender equality also implies that the state must step in to lighten the women’s role in the “care economy”. The CESS study (2009) conducted in two districts of Andhra Pradesh illustrates how participation of women in NREGS can lead to situations wherein education of school going girl children is interrupted so that they may look after younger siblings when the mother goes to work. Such a scenario needs amending with a more sustained campaign for the operationalisation of crèches. The GBPSSI (2009) Study also showed that there is an increasing trend to appoint “mahila mates” on a large scale in Rajasthan which is a positive development. 9.39 Other implementation difficulties have included confusion about roles and responsibilities of NREG personnel and lack of a grievance redressal mechanism such as a district ombudsmen or Lok-Adalats. 9.40 Overall, as stated earlier, even within the existing framework and limitations, many of the problems can be substantially overcome if the political and administrative leadership at the state and local levels plays a more proactive role in implementing the objectives of the NREGA.

Need for Entitlements

Safeguarding

Essential

9.41 As noted elsewhere in this chapter, several violations of the basic entitlements of workers under the scheme are routinely noticed. At the same time, these entitlements become more difficult to safeguard due to

224

Public Employment Programme for the Unorganised Workers: The Case of NREGA

low levels of awareness among the workers in several parts of the country. As studies show, violations of NREGA norms are with respect to issues such as setting up of proper work application process and receipt of applications, payment of minimum wages, delays in payments, and lack of basic facilities at work places. While some of the violations occur due to procedural lapses like over-exacting or non-transparent’ schedule of rates, defective measurements, and weaknesses/gaps in the implementation system, there are also instances of wilful denial of entitlements by the officials. 9.42 At the same time, the NREGS hinges on a demand-based entitlement system, which also does not work well due to low levels of awareness and organisation among the workers. The GBPSSI (2009) Study of six north Indian states reveals that only about half of the workers are aware that they are entitled to 100 days of work over the year. Similarly, a majority of the workers are not aware of other entitlements like minimum wages and the stipulation that wages are to be paid within 15 days. Findings from six states viz., Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Rajasthan and Uttar Pradesh pointed out that a large majority of the NREGA workers belonged to the most disadvantaged groups, and most of them needed 100 days of work. Almost 50 per cent of the sample workers are willing to work throughout the year.

Some Operational Deficiencies 9.43 Field surveys point to the fact that on the three important process dimensions viz., participation, transparency and accountability, the general picture is fairly dismal, but balanced by signs of positive changes in many states. Several studies conducted in different states point out gaps in the performance of PRIs (gram sabha), vigilance committees, and such local institutions. According to the GBPSSI (2009) Study of six north Indian states, 54% of the respondents who attended Gram Sabha meetings conducted in the last 12 months stated that NREGA had been discussed, specifically on matters such as preparing a shelf of projects. In 33 % of the worksites in the same study, workers reported the formation of vigilance committees.

9.44 Several shortcomings identified vis-à-vis entitlements and processes are closely linked to the operational structures, which are meant to carry out functions with efficiency and effectiveness at different levels. For example, it is observed that at the Central Government level itself there are limited number of staff and senior level administrative supervision (one joint secretary) absorbed in day-to-day crisis management, with virtually no time and energy for putting in place durable systems and support structures for NREGA. The Central Employment Guarantee Council, whose expertise, advice and services could have been used effectively for enhancing the programme effectiveness, is virtually non-functional. 9.45 Absence of central coordination is also leading to confusion at the field level and it is evident from the field sur veys that inflexibility or inability in implementation stems from interpretation (or lack of it) of the guidelines, rules and amendments which are passed down to the cutting edge staff. A closer coordination between the Central Government and the state governments is anticipated as often lack of clarity in rules and guidelines lead to inaction or inconsistency in application of rules. 9.46 It is also found that functionaries at the Gram Panchayat and Block levels tend to be thoroughly confused about their duties, and poorly informed about the recent changes in the Schedules, Rules, Guidelines, and so on. It is found in the field surveys that even persons in positions of high responsibility often lack a clear understanding of the operational framework of NREGA. 9.47 While NREGA is a national legislation, its implementation is state-specific. There have been major contrasts between the experiences of different states, and a large number of interesting state initiatives also emerged relating, for instance, to record-keeping, worksite management, transparency safeguards and social audits etc. Clearly, there is immense scope here for mutual learning. There appears to be no effort towards systematic institutional learning on the good practices of implementation across the country. Absence of such an opportunity for institutional learning would mean each state government undertaking stupendous task of going through the processes related to establishment of 225

The Challenge of Employment in India

operational procedures by themselves, often through trial and error. 9.48 In a programme of this nature, process evaluations become more meaningful than mere output and outcome measurements. This is because there is often a gap between the de jure rights (legally mandated) and the de facto rights (in practice). A quantity based MIS has a tendency to obliterate any information that points to a violation of the Act or Guidelines, as this would expose responsible officials to disciplinary action. To illustrate, the MIS routinely shows that the number of days of “employment demanded” is more or less (often exactly) the same as the number of days of “employment provided”. Yet independent studies, including those initiated by NCEUS, clearly show that the work application process is not in place. These operational lacunae thrown up by our studies need to be addressed in order to strengthen performance of the programme.

Recommendations 9.49 The Commission regards the NREGA as an important component of the full employment strategy for India. In our assessment, the impact of the NREGA in the first three years of its implementation have, on the whole, been positive but given the size and the several inter-related objectives of the scheme it needs to be carefully nurtured and strengthened, especially in the lagging areas and regions. The NREGA has now become the focus of a considerable amount of international and national attention and is being considered a significant route to expanding demand and creating a safety net in the context of the current global crisis. Following on our earlier recommendations and based on the studies sponsored by us and discussed in the preceding sections, the Commission proposes a number of specific recommendations as given in the following

Programmatic Recommendations

which actually contribute to the long term development of the village. •

Control over the community assets created under NREGA and responsibility of maintenance should be vested with the workers (men and/or women) so that they will have long term stake. The community assets could be owned by the government and the surpluses generated could be distributed among the workers themselves.

•

The assets could also be constructed on the land owned by marginal and small farmers belonging to deprived sections (apart from SCs and STs) to increase the productivity of their lands.

9.51 Expand the Limit to Employment Days under NREGA: In view of the growing demand for work among the poor and the vulnerable, the Commission strongly recommends expansion of limits on the employment days provided per household in the programme in the following ways: •

In the districts where more than 50% of the working population belong to the SCs and STs, or in distress situations of calamity or in districts where workers have already achieved the maximum days of work under the programme, the cap of 100 days of employment should be removed.

•

Along with the above, employment guarantee should be made applicable for each individual. This would mean one hundred days of work with “one person-one job card-one bank account”. This would create tremendous scope for women’s empowerment.

•

As already recommended by the Commission, NREGA activities should be taken up in class B and C municipalities as that would enhance employment opportunities in semi-urban localities.

9.50 Expand the List of Assets and Vest them with the Poor: In view of the fact that NREGA provides an excellent platform for the productive asset creation, the Commission recommends that:

9.52 Improve Convergence with Other Departments & Dovetail with Other Programmes: In order to improve the effectiveness of the public works programme and its potential to transform the rural asset base, the Commission recommends the following:

•

•

The list of assets could be extended to include other developmental works that creates assets

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Greater convergence of NREGA with the works carried out by the other development departments.

Public Employment Programme for the Unorganised Workers: The Case of NREGA

Integration of works with natural resource management and watershed development plans should be enhanced. Large scale NREGA works should be initiated on forest land in collaboration with the Forest Department with adequate environmental safeguards and transparency. Strict adherence to the guidelines for utlising the labour component of NREGA funds should be ensured. •

Coupling of work activities offered under the NREGA with provision of social services (e.g. involving workers in activities such as preparing meals for the Mid Day Meal Scheme, housekeeping services for primary health centres, care givers and helpers for crèche etc.) should also be explored.

missions) should be created in order to provide adequate support structures for the Central and state governments. •

9.55 •

The main provisions of the operational guidelines should be converted into binding rules (and in some cases appropriate amendments of the schedules of the NREGA). Enhance Administrative Expenditure Limits Great concerns have been expressed from all the quarters on the low level of permissible administrative expenditure. The Commission is of the view that this may be raised from the current 4 % to 6% of NREGA funds and of this, 0.5% should be earmarked for transparency measures (including independent evaluation studies)

9.53. Strengthen Capacity Building of Workers & Institutions: Given the extent of activities, the need for enhancing skills of implementation and support functionaries and that of communities are necessary. Towards this end the Commission recommends that:

9.56 Focus on Awareness Generation: Critical element in demand generation for work is awareness among workers. Towards this end the Commission recommends the following measures:

•

•

Having a mandatory ‘entitlement page’ on the job cards describing the entitlements in simple language.

•

Simple primers and book-lets for awareness building for Gram Panchayats and Gram Rozgar Sevaks and other facilitators including NGOs.

•

Active use of radio, audio and visual media.

•

Encouraging submission of collective work applications by job seekers (appropriate forms should be designed for this).

•

Involving premier institutions like National Legal Services Authority (NALSA) for enhancing legal literacy and awareness on entitlements and encouraging involvement of NGOs.

•

The scheme’s guidelines should make provision of up-gradation of skills of women and men workers so that they may be able to take up skilled jobs in the implementation apparatus of the programme. Capacity building of communities and implementation machinery on participatory planning should be taken up in order to identify works and prepare plans for implementation. Dissemination of blue prints of activities in simple language would enable participatory planning with community members.

Strengthen Operationalisation 9.54

Strengthen National Support Structures

•

Given the size of the programme and the enormity of the task at hand, the Commission recommends reconstitution and activation of National Employment Guarantee Council in order to provide leadership and vision for the programme.

•

Similarly, a full fledged Employment Guarantee Mission (on the lines of health and education

Provision for trained mates and adoption of “Rajasthan Model” of worksite management.

The Challenge of Employment in India

•

Mandatory child care facilities should be provided at the work site.

•

Provision of work for persons with disabilities and women in the management of mandatory worksite facilities (water, shade, first-aid and child care).

•

Opportunities for “light work” on a daily-wage basis should be provided at every worksite for persons who are unable to meet the standard productivity norms due to old age, disability, illness, pregnancy and related conditions.

9.58 Strengthen Transparency Safeguards: Although NREGA is unique in the sense of creating mechanisms for transparency and accountability, there are still several lacuna identified in the implementation of the same. It is therefore recommended that: • •

•

•

•

Strong transparency rules should be framed at the national level. Accountability should be clearly fixed for the implementation of specific transparency safeguards. Failure to implement these safeguards should attract an automatic penalty under Section 25 of NREGA. Mandatory daily signature (or thumb impression) of worker on the muster role should be enforced by way of marking attendance (as is the practice in the state of Tamil Nadu). Social audit rules should be framed and institutionalised across the country ( building on the experience of Andhra Pradesh) Accessibility of all NREGA records for public scrutiny should be accorded at all levels within a stipulated time period (of seven days).

9.59 Improve Bank Payment Modalities: Ministry of Rural Development (MoRD) has made mandatory payments through Banks. It is a welcome move, as it has enabled financial inclusion of large sections of men and women workers. On the other hand, several measures are necessary to further transparency and efficiency. Towards this end the Commission recommends the following steps:

228

Payment Orders: A model Payment Order (PO) should be designed, posted on the NREGA website, sent to the state governments, and included in the next edition of the Operational Guidelines. All state governments should be instructed to use this model Payment Order (or an improved version of it). Wage Slips: The use of “Wage Slips” (to be given to NREGA workers in public), recommended in the NREGA Operational Guidelines (Para 7.2.1.xi) should be mandatory. Alternatively, payments may be made through Account Payee cheques. The transparency norms applicable to wage payments in cash (payment in public, reading aloud of muster roll, updating of Job Cards, etc.) should be applicable to the distribution of Wage Slips or cheques. Minimum Safeguards: The Reserve Bank of India should be requested to issue strict instructions to all banks on the payment of NREGA wages, including the following “minimum safeguards”: •

Amount should be withdrawn only in the presence of NREGA workers.

•

Passbooks should be updated when money is withdrawn.

•

All NREGA-related documents (including details of bank accounts of NREGA workers) maintained by the banks should be open to public scrutiny.

•

Bank statements of Gram Panchayat accounts should be pro-actively disclosed at the end of each financial year.

MoUs with Banks: Similar instructions should be issued directly by the MoRD, e.g. in the form of a clarification (addressed to the banks) about the terms and conditions under which they are expected to handle NREGA funds and payments to NREGA workers. State governments should be encouraged to sign explicit MoUs with the banks, incorporating these minimum safeguards.

Public Employment Programme for the Unorganised Workers: The Case of NREGA

Improved Guidelines & Rules: Section 7.2 of the NREGA Operational Guidelines, dealing with bank payments, should be improved in the light of recent experience and converted into Rules.

“Job Charts” specifying their duties. Failure to perform one’s duty as per the Job Chart should attract penalties under Section 25 of the Act. •

9.60 Set up an Independent Grievance Redressal System: The Commission identified the necessity to set up mechanisms for addressing grievances. The following steps should be taken up in this regard: •

Strong grievance redressal rules should be framed at the national level. The provisions therein should include; setting up of district level grievance redressal cells to adjudicate and monitor redressal of complaints, setting up of toll-free help lines at the district level and monitoring of redressal (with adequate publicity on this measure) etc.

•

Similarly, the Central and state governments should frame rules for activation of penalty provisions under Section 25 of NREGA.

•

Expansion of ‘Lok Adalats’ on NREGA may be explored, as it is currently being experimented in some locations.

•

Full time ombudsman for NREGA may be institutionalised.

9.61

All vacant posts should be filled up, ensuring that each block will have full time programme officer (at the rank of block development officer).

•

For hiring skilled staff for the programme, the following amendment of Schedule I may be considered for this purpose: Subject to norms specified by the Central Government, the following categories of skilled labour may be employed by State Governments on a daily-wage basis (up to 365 days a year): Gram Rozgar Sevaks; technical assistants, trained mates; data entry operators; social auditors; child-care givers. A portion of their wages, equal to the wage earned by unskilled workers, will be paid by the Central Government.

•

9.62 Improve Gender Sensitive Implementation: Evidences point towards the positive impact of NREGA in altering gender relations in the rural areas. The Commission, based on the evidences, so far recommends the following measures to further the goals of gender sensitive programme implementation: •

33 per cent participation of women: Proactive measures by the state governments for fulfilling the mandate of 33 per cent norm of women’s share of NREGA should be enforced forthwith. Incentive and dis-incentives should be developed for enhancing women’s participation in NREGA.

•

Equal participation of women in NREGA should be promoted at all the levels, not just in terms of labour participation at the worksite. “Fifty per cent” should be the standard minimum target for women’s share of NREGA posts, e.g. Programme Officers, Gram Rozgar Sevaks, trained mates, social auditors, data entry operators, junior engineers, technical assistants, and so on.

•

Single women: Widows, separated women and other single women should be entitled to separate Job Cards irrespective of their living arrangements.

•

Bank accounts: Payment of women’s wages through men’s (e.g. their husbands’) bank accounts should be prohibited. Women workers should have their own bank accounts, or, at the very least, be equal co-signatories of joint accounts (e.g. husband and wife).

•

Breast feeding breaks should be incorporated into the work schedule of women at NREGA worksite.

The support structures developed under the Employment Guarantee Mission should include a Training Unit, to facilitate the development of first-rate training resources as well as wide dissemination of the best training modules from different states.

9.63 Other Recommendations: There are a few other issues that merit attention of the policy makers in order

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to streamline the functioning of NREGA. The Commission recommends: •

Review of entire record-keeping system for streamlining and capturing some of the critical elements like delays in payment etc.

•

Separate funds (at least 3%) should be earmarked for employment of persons with disabilities as per the guidelines.

•

Employment should be made available on the daily wage basis for persons who are unable to meet the standard productivity norms due to disability, old age, illness, pregnancy, etc.

•

Professional technical support team should be made available at the district and block levels to support the implementation of NREGA.

•

A national minimum wage should be introduced in place of current freeze on wage rates.

•

Rules should be framed for payment of unemployment allowance in case the officials fail to provide employment. Officials who refuse to accept written applications from job seekers should be liable for punishment under Section 25 of NREGA.

Conclusion 9.64 NREGA is undoubtedly the most important productive employment programme in independent India. It has acquired the much needed political legitimacy and appears to have secured a stable place in the Indian economic and social policy for many years to come. Under implementation for the past three years, the programme has demonstrated varying degrees of success across the country and has been able to substantially silence its sceptics. Evidence points towards a positive trajectory of

the programme meeting its objectives. Increasingly, scholars and policy makers are convinced of the potential of NREGA and its role in inclusive development goals of the country. 9.65 However, at the operational level its achievements are still short of its potential, overall. This chapter has attempted to distil experiences of the NREGA based on the studies commissioned by the NCEUS as well as by other agencies and scholars. We have identified critical issues and concerns that need immediate attention from the policy makers and implementers. Specific recommendations have been offered for the consideration of the Central and state governments. 9.66 A central requirement in the NREGA is the creation of appropriate structures and capacitating the same for effective implementation of the programme. However, we find the implementation apparatus to be inadequate and ill-capacitated. We have identified this as an important reason for several operational lacunae. To overcome this obstacle, we have recommended a strengthening of the national, state and local support structures. We have also underscored the need for participatory planning which should allow for asset creation with distributive benefits under the scheme. Creating adequate technical capacities at the field level is also identified as critical for the success of NREGA. Lack of overarching and mandatory framework and rules for transparency and accountability are also impinging on the programme, as are delays and discrepancies in wage payment. If only there is sufficient overhaul of the scheme’s implementation through a variety of instruments – increased awareness among workers, expanded scope of the works, efficient worksite management, grievance redressal mechanisms and gender sensitivity in planning and implementation of work - will the scheme be able to truly take off.

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10 An Employment Strategy for Agriculture Centred on Marginal & Small Farmers

Introduction 10.1 Agriculture is the primary source of employment in India especially in the rural areas. As per the NSSO 2004-05 Employment– Unemployment Survey, nearly 57 per cent of the total employment and 73 per cent of rural employment is generated in the agricultural sector. 10.2 In some countries ‘unorganised workers’ or ‘informal workers’ are identified as the urban self-employed and in some others they include the urban self-employed as well as the urban casual workers. This Commission has taken a broader view by extending the definition to the rural economy in general and agriculture in particular because, if informality is used to denote the unprotected nature of work, the rural workers are equally vulnerable. Moreover, rural economy in India is more dominated by self-employment than the urban one. As such, the Commission has examined the conditions of work and livelihood issues of agricultural workers in the same spirit as it did with regard to its earlier report on social security. By common practice, unless otherwise specified, agriculture refers to crop cultivation, forestry, fishing, hunting and livestock rearing. For the sake of brevity and common usage, self231

employed in agriculture are referred to as farmers and wage workers as agricultural labourers. Together they are referred to as the agricultural workers. 10.3 The total number of agricultural workers in India has been estimated at 258 million as of 2004-05. About 248 million of the total rural workforce of 341 million are in rural areas. Agricultural production takes place largely on individual or joint holdings. Except for the segment of agriculture which comes under plantations and those covered by corporations and large cooperatives in the organised sector, the Commission has categorised the remaining parts as the unorganised agriculture sector. The share of unorganized sector agricultural workers in the total agricultural workers was 98 per cent during 2004-05. Nearly two-thirds of the agricultural workers (64 per cent) are self-employed, or farmers as we call them, and the remaining, a little over one-third (36 per cent), wage workers. Almost all the wage workers (98 per cent) are casual labourers. Farmers are a group which could be differentiated by size of land holding as a good proxy. Given the overwhelming dominance of the unorganized sector in agricultural employment, we have dealt with the sector as a whole. But as

The Challenge of Employment in India

elsewhere in the Commission’s work, we focus on the more vulnerable segments of the workforce, viz., labourers or marginal and small farmers.

Employment Potential of Indian Agriculture

employment. At the other extreme, there are seven states with an overwhelming burden of employment in agriculture to the extent of 66 to 75 per cent. In the remaining fifteen states structural transformation is round the corner for at least the one-third.

10.4 While agriculture no longer dominates the Indian economy in terms of national output, it is still predominant in terms of employment. However, in line with development expectations, the share of the agricultural workforce has declined gradually during the last two decades with diversification of the rural employment into non-agricultural activities. But agricultural workers still constituted as high as 56.6 per cent of the total workers in 2004-05, down from 68.5 per cent in 1983. In rural areas, agricultural workers constituted 72.6 per cent of the total workers in 200405, down from 81.6 per cent in 1983. The decline during this period has been rather slow. Nevertheless, it is significant from a historical point of view when the rural economy was synonymous with agriculture. The situation is still one of overwhelming presence of agriculture but the signs of economic diversification are quite strong, albeit, slow with distinct regional variations. As we have shown in NCEUS (2007b), as of 2004-05, there are at least five states, which have achieved a broad structural transformation in the sense that agriculture’s share accounts for less than 50 per cent in both income and

10.5 The overall structural change in employment has occurred as a result of the slower growth of employment in the agricultural sector vis-à-vis the total employment. Over the last two decades the agricultural workforce grew at 1.04 per cent per annum while the total workforce grew at 1.94 per cent per annum (Table 10.1). During 1983-2004/05, female agricultural employment grew at a rate faster than male agricultural employment. A comparison of employment growth rates between 1983/ 1993-94 and 1993-94/2004-05 shows that the growth rate of agricultural employment decelerated sharply in the last decade, from 1.38 percent to 0.72 per cent. Although the growth of total employment also declined from 2.03 per cent during 1983/1993-94 to 1.85 per cent during 1993-94/2004-05, the deceleration was clearly not so sharp as in the case of agricultural employment. It is obvious from these results that there is a gradual decline in the potential of the agricultural sector to absorb the incremental workforce. Further, structural constraints appear to be restricting the scope of women’s employment outside agriculture, confining them primarily to this sector. We return to this issue later in this chapter. Table 10.1: Growth Rate of UPSS Agricultural and Total Workers (Percentage)

An Employment Strategy for Agriculture Centred on Marginal & Small Farmers

10.6 Despite the slower employment growth than in other sectors, agricultural sector (including the allied subsectors) continues to show a reasonable potential to absorb workers (given its existing large employment base), although with fluctuating trends. We have computed trends in employment, employment per acre, productivity per worker, and agricultural growth, and employment elasticities for three points of time (1983, 1993-94, and 2004-05) and two sub-periods (1983 to 1993-94 and 1993-94 to 2004-05). We have used two different concepts of employment - the Usual Status variant, extensively used in this and earlier reports, and that based on the Current Daily Status (CDS), the latter being more relevant than the former while analyzing labour absorption in agriculture, in crop cultivation in particular. 10.7 During this entire period (1983 - 2004/05) agricultural GDP grew at an annual rate of 2.58 percent, higher at 2.63 percent in the first period (1983 - 1993/ 94) than in the second (2.52 % during 1993/94 - 2004/ 05) (Table 10.2). Employment in agriculture (UPSS) grew at a fairly high rate of 1.04 percent over the entire period, declining from 1.38 percent per year in the first period to 0.72 percent per year in the second period. Employment elasticity of agricultural growth was estimated at 0.40 for the entire period and 0.52 and 0.28 respectively in the two sub-periods. 10.8 A similar picture emerges when we analyse the CDS employment data. Employment in agriculture (CDS) also registered a growth rate of 1.78 percent overall, 2.77 percent in the first period and 0.85 percent in the second. Employment elasticity in the second period was close to half of the level in the first period - 0.82

percent in the first period and 0.36 percent in the second period. 10.9 The two large sub-sectors in agriculture are the crop sector (including plantations) and animal husbandry. The NSSO provides estimates of CDS employment by type of employment (manual/non-manual) and subsectors, enabling us to estimate the employment by subsectors. Since the non-manual employment estimates are separately available only for two groups, cultivation and activities other than cultivation, we discuss here the estimates of manual employment in cultivation activities and animal husbandry. In terms of (gross) value of output, the crop sector grew at an annual rate of 2.21 percent during 1983 - 2004/05 while the livestock sector grew at an annual rate of 3.93 percent per annum. Employment in the crop sector grew at 1.29 percent per year in this period, while the livestock sector experienced an annual employment growth rate of 2.59 percent per year. Thus, the livestock sector experienced both a faster rate of output growth as well as employment growth. Employment elasticities were reasonably high in both sub-sectors, but was higher in the livestock sector (Table 10.3). In cultivation, the employment elasticity was 0.56 in the first sub-period, 0.60 in the second sub-period and 0.58 for the entire period. In the livestock sector, employment elasticity was 0.70 in the first sub-period, 0.63 in the second sub-period and 0.66 in the entire period. 10.10 We have also estimated employment in cultivation per hectare (net and gross) sown. Between

10.17 There is clear evidence that in recent years, agricultural growth particularly in food grains has declined. This has had an adverse effect on the growth of agricultural wages that have shown signs of deceleration in the nineties making the situation even more unfavourable for the agricultural labourers. On the other hand, farmers, particularly the marginal and small farmers, are also facing a crisis due to increasing input costs and uncertain output markets. In these conditions government support in the form of policy initiatives and schemes to protect the interest of agricultural workers becomes even more pertinent. However, in the postnineties period, there has been a decline in government support in the form of declining investment in agriculture and subsidies to the sector are also being rationalized. The withdrawal of the state has led to a much greater dependence on private sources for inputs, extension, markets and credit. Farmer suicides have been widespread in the last several years and the victims have largely been marginal and small farmers. Increasing costs of cultivation leading to higher indebtedness, crop failures and incapacity to face price shocks with greater liberalization of the agricultural sector have driven farmers to the extreme. This has prompted the Central and state governments to set up several commissions including the National Commission on Farmers and the Committee on Agricultural Indebtedness to suggest remedial steps. 10.18 Agricultural policy followed during the last five decades can be broadly classified into three phases. Phase one, immediately after independence, witnessed several institutional changes through land reforms and initiation of major irrigation projects. The second phase, since the mid-sixties, was aimed at increasing agricultural productivity to attain self-sufficiency in food grains through technological revolution and public support to credit, marketing, extension etc. This was followed by the current phase, since the late eighties, aimed at making agriculture more market oriented. 10.19 Several studies in the 1960s and 1970s averred that the Green Revolution had a scale, size and capital bias and small and marginal farmers could not make the most of it. Despite this view, productivity gains were gradually realized even among the small and marginal farmers as indicated by the high, sustained agricultural

growth through the eighties which also spread to several agriculturally stagnant areas. The main reasons for this spread appear to be that the new agricultural technologies were divisible, and the government pro-actively fostered the spread of credit, marketing and extension institutions and also facilitated their adoption by small and marginal farmers. An important role in the consolidation and spread of agricultural growth was also played by the special programmes, which were initiated by the government from time to time. The Small Farmers Development Agency (SFDA) programme was instituted in 1971 with the objective of assisting marginal and small farmers to raise their income levels by helping them to adopt improved agricultural technology and acquire means of increasing agricultural production like minor irrigation sources on the one hand, and to diversification of their farm economy through subsidiary activities like animal husbandry, dairying, horticulture etc, on the other. Two area based programmes, namely the Drought Prone Area Programme and the Desert Development Programme were started with a view to encouraging sustainable resource management and agricultural development in specific agro-ecological settings. The Million Wells Scheme was introduced with the prime objective of catering to the irrigation needs of the small and marginal farmers to increase the productivity of their holdings. Although the scheme faced various impediments, it has contributed to increasing the irrigation potential of the small/marginal farms. A review of agricultural policy however shows that no notable efforts have been made over the last decade or so to overcome the handicaps faced by the marginal and small farmers. 10.20 Since the nineties it has been noticed that the productivity gains from the Green Revolution have started receding. The agriculture sector in general, particularly the crop sector, is going through a slow down. Among other factors, it has been indicated that the change in the priorities and stance on state support has had adverse effects on the development of rural areas in general and agricultural sector in particular. The gains to the sector visualized through improved terms of trade, with the removal of the bias against the sector after the process of liberalization was initiated, have not emerged while increasing price volatility has added to the vulnerability

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An Employment Strategy for Agriculture Centred on Marginal & Small Farmers

of the farmers. High level of distress and rising indebtedness (to informal sources) have been witnessed among the farmers across a number of states. The small and marginal farmers, given their poor economic conditions, failed to overcome the seasonal and price shocks and are caught in a vicious circle of indebtedness as they have to take loans to meet their consumption needs, which is causing immense distress among them. 10.21 In the liberalised scenario and with increased integration with the global markets it has become even more imperative to protect the interests of the marginal and small farmers through measures that help promote and stabilize incomes, reduce risks and increase profitability and at the same time improve availability and access to inputs, markets and credit. However we have observed that the dependence on private sources for inputs, irrigation and most importantly, for credit among the small and marginal farmers has increased in recent years reversing the earlier trend towards expansion in access. 10.22 The shift in the policy stance is also underwritten by the ambiguity regarding the growth and employment potential of Indian agriculture in general and small farmers in particular. As an example, the Tenth Plan Mid Term Review, while recognizing the production slack (on the supply side), noted that there are sharp demand side constraints (both domestically and internationally) which may be overriding on Indian agriculture. As mentioned earlier, the manifestations of the agricultural crisis have prompted the Central Government to set up various commissions and committees to explore the potential of agriculture through an appropriate institutional and policy matrix. All these reports are predicated on the assumption that agriculture continues to have considerable growth potential (a target of 4 percent rate of growth during 2007-2012) provided the right kind of steps are taken. The upturn in agricultural growth in the recent period seems to confirm these expectations. Below, we briefly review some of the analyses and measures taken.

of Dr. M.S. Swaminathan to specifically look into all aspects concerning the protection of the interest of farmers. The key recommendations of the NCF are summarised in its proposed National Policy for Farmers. The document recognizes the misery of the poor farmers and observes "agriculture has become a relatively unrewarding profession due to generally unfavourable price regime and low value addition, causing abandoning of farming and increasing migration from rural areas….". According to the NCF, several factors contributed to this situation. These include shift in the cropping pattern towards cash crops, lack of level playing field for farmers in the global market, increased dependence on high-cost inputs which increase the costs of cultivation and indebtedness, increasing risks, declining profitability and declining public support. In this context, the NCF has noted that the Government had initiated a number of measures such as Bharat Nirman, NREGA, expansion of credit at lower rates of interest, promotion of horticulture, fisheries, changes in the Agriculture Produce Marketing Committee Act (APMC) etc. But most of these measures are still in the initial stages. The NCF has also recognised the need for a social security system and has endorsed the recommendations of the NCEUS in this regard. 10.24 The NCF recommendations cover a variety of issues. Some of the key recommendations are: •

Setting up sophisticated soil testing facilities and issue of soil health passbook to every farmer.

•

Setting up the Rain-fed Area Authority and convergent measures for water conservation.

•

Developing a cadre of rural farm science managers at the panchayat level and strengthening lab-toland interactions.

Promotion of commodity based farmers' organisations to combine the advantages of decentralised production with economies of scale in post-harvest management, marketing etc.

Recent Initiatives in Agriculture 10.23 The Government constituted the National Commission on Farmers (NCF) under the chairmanship 237

The Challenge of Employment in India

10.25 The Eleventh Plan Steering Group on Agriculture (Planning Commission 2007b) and the Planning Commission's note to the National Development Council have also amply recognised the adverse conditions faced by agriculture and have advocated detailed strategies to reverse the downturn. The Eleventh Plan has targeted a 4 per cent rate of growth of agriculture. It recognises that even this ambitious rate of growth will not reduce the gap between agricultural and non-nonagricultural workers unless the pressure of the workforce on agriculture reduces. The Plan also recognises that there could be both demand and supply side factors constraining the growth of agriculture. Among the main supply side factors constraining the growth of agriculture, the Plan emphasises the role of technology and public investment, given that both of them had slackened during the preceding decade. The Plan also highlights the imbalance between irrigated and rain-fed areas. 10.26 The Plan further emphases the role of marginal and small farmers and spells out a number of areas, including land reform which could address the constraints faced by these farmers. It also acknowledges the growing feminisation of agriculture. While building up on the programmes launched during the 11th Plan, the recent strategy for agricultural development is underpinned by four major programmes/schemes: Watershed Development which aims mainly at water stressed rainfed areas; the Accelerated Irrigation Benefit Programme, the National Agricultural Development Programme, and the National Food Security Mission (GOI 2007). Meanwhile the Ministry of Agriculture has enunciated a National Policy for Farmers (MoA 2007a) and a detailed Action Plan required (MoA 2007b). These steps are expected to place agriculture on a sustainable high growth path, simultaneously improving the lot of the farmers. 10.27 The National Agricultural Development Programme (NADP) or the Rashtriya Krishi Vikas Yojana (RKVY ) represents a new decentralized and bottom-up approach to agricultural planning which the states can use to strengthen agriculture. The programme has emerged from the deliberations of the National Development Council which has called for a new Additional Central Assistance Scheme to the State Plans,

over and above the existing schemes to enable them to draw up comprehensive plans, suited to the local needs, to develop agriculture more comprehensively. The RKVY assistance would be in the form of a 100 per cent grant. The states are required to prepare the agriculture plans for the districts and the state to comprehensively cover resources and indicate specific action plans. Convergence with other schemes of the GOI is proposed under the RKVY. The programme is available to the states in two streams. Stream I would consist of specific projects. Stream II would be available for strengthening existing state schemes and for filling the gaps. The requirements for the RKVY would be assessed on the basis of the District Agricultural Plan (DAP) and the State Agriculture Plans (SAP). These plans would cover the agriculture and allied sectors comprising animal husbandry and fishery, minor irrigation projects, rural development works, agriculture marketing schemes and schemes for water harvesting and conservation etc. keeping in view the natural and technological possibilities in each district. 10.28 The National Food Security Mission has been launched as a Centrally Sponsored Scheme with the aim of increasing the production and productivity of some major food crops (rice, wheat and cereals) on a sustainable basis so as to ensure food security of the country. The production of rice, wheat and pulses is targeted to increase by 10 million tons, 8 million tons and 2 million tons respectively by the end of the Eleventh Five Year Plan. The approach is to bridge the yield gap in respect of these crops through dissemination of improved technologies and farm management practices. The scheme will focus on districts which have high potential but relatively low level of productivity at present. The mission aims at achieving its objectives through promotion and extension of improved technologies i.e. seed, Integrated Nutrient Management including micronutrients, soil amendments, Integrated Pest Management and resource conservation technologies along with capacity building of farmers. The scheme will be implemented through the Agricultural Technology Management Agency (ATMA) at the district level. The selection of beneficiaries and the identification of priority areas will be done by the PRIs. At least 33 per cent of the beneficiaries would be from small/marginal farmers.

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The allocation to SC/ST farmers would be in proportion to their population in the district. A beneficiary farmer would be entitled to avail assistance for area up to 2 hectares. 10.29 The Macro Management of Agriculture Scheme, a centrally-sponsored scheme which became operational in 2000-01 after the merger of 27 schemes, has been revamped in the light of the other initiatives taken in this plan. The scheme provides sufficient flexibility to the states to develop and pursue the programmes on the basis of their regional priorities. Ninety per cent of the cost of the scheme is borne by the Centre. Revised guidelines for the scheme have been issued in July 2008, with respect to coverage and other issues in order to avoid overlap with other new schemes/ programmes launched by the Government of India and to bring uniformity in the cost and subsidy structure of the MMA with other schemes. The inter-state allocation under the scheme will now give a 50 per cent weightage to percentage of area under marginal and small farms. Thirty-three per cent of the expenditure under the scheme will be on marginal-small and women farmers, with the share of expenditure allocated to SC/ST farmers in proportion to their population. The list of sub-schemes under the MMA have now been pruned to 11, and 15 components have been identified for financial assistance. These include distribution of hybrid/HYV seeds; distribution of seed mini-kits and micro-nutrients; demonstration of improved packages; promotion of agricultural mechanization; training of farmers; skill development, etc. 10.30 The National Policy of Farmers, 2007, has laid down an overarching blueprint for the growth of the entire farming sector. The basic objectives of the policy are to improve the livelihood, income and social security of the farmers, giving due weightage to the human and gender dimensions. The policy gives key place to asset reforms including land, water, livestock, fisheries, and bio-resources and animal genetic resources. It looks at the ways of strengthening the range of support services, in farmer-centric and gender sensitive ways. The policy also suggests participation in group approaches such as co-operatives, SHGs, small holder estates, farmer

companies, and contract farming as the future of Indian farming. 10.31 It will be noted that these programmes and policies cover the entire agricultural sector and do not focus on marginal and small farmers alone. The NFSM and the MMA do set targets for marginal and small farmers but these are pegged at one-third (against their overall share of 80%). With the marginal and small farmers constituting the majority of farmers in the country, accounting for a substantial proportion of operated area, and with mounting evidence of an agrarian crisis, especially affecting marginal and small farmers, there is a special requirement to focus on these farmers

Dimensions of Marginal/Small Farming in India 10.32 As pointed out by this Commission, at all India level, more than 80 per cent of the farmers belong to marginal and small farm size groups, owning or operating less than 2 hectares of land. The percentage of marginal and small farmers in the total, and also the land operated by them has steadily increased over time. The percentage of marginal farmers has gone up from nearly 38 per cent in 1953-54 to about 70 per cent in 2002-03. The share of marginal and small farmers in owned land went up from 16.3 per cent in 1953-54 to 43.5 per cent in 200203. A similar pattern in the land distribution is discernible in case of operational holdings also. By 2002-03, the marginal and small farmers accounted for nearly 80 per cent of operational holdings as compared to about 61 per cent of 1960-61. The small holding character of Indian agriculture is much more prominent and pertinent today than ever before. Nonetheless, we still need to reckon with considerable inequality in land ownership and operation. Medium and large farmers (6 per cent of the farmer households) operate more than one-third of the total operated area while large farmers (0.9 percent of the total) still operate 13.1 percent land. 10.33 Inter-state analysis indicates that the marginal and small farmers as a group outnumber the rest of the farmers in all the states. In twelve out of 27 states marginal and small farmers constitute the overwhelming majority of farmers, accounting for 90 per cent or above. While marginal and small farmers outnumber the

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Timber Forest Produce (NTFP). It has noted that both in crop agriculture as well as livestock development, training programmes are designed primarily for men. Since women do not usually have ownership rights, the report has called for promoting such rights through joint ownership and pattas, as well as other forms of production such as tree pattas and cooperative model of production which give women greater control. The report also calls for giving women farmers Kisan Credit Cards on the basis of the joint pattas. All these call for policies and programmes and innovative institutional approaches that are sufficiently gender sensitive. This is also recognized by the Eleventh Plan.

Social Identity & Farming 10.43 We have seen in the Commission's Report on Conditions of Work, that certain social groups, particularly SCs and STs, predominate in the labour market. This is a result of a historical denial of land and cultivation rights to those who were at the bottom of the social pyramid, even though they happened to play a very important role as direct producers. Currently there is great asymmetry in the ownership and operation of land, as shown in Table 10.6. 10.44 In the Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector (NCEUS 2007a), the NCEUS had shown that access to the quantum of land is an important determinant of access to economic resources such as credit as well as the outcomes in terms of income and poverty status. Further, the social identity of farmers is also seen to mediate access to economic resources and outcomes. Thus, higher social status meant better outcomes across the size class of land possessed. The relationship between poverty and land

possessed is clearly mediated by social identity. Such findings pose additional challenges beyond the economic dimensions of the farmers' status. 10.45 Further, in our analysis in NCEUS (2008b) we have shown that even after accounting for the quantity and quality of land owned by the socially deprived groups, their access to credit, information, publicly provided inputs and extension services is lower, indicating that they possibly suffer from discrimination in the delivery of these public services. A few studies have also shown that socially deprived groups also suffer from market based discrimination, which one hopes that state policy and programmes would help to compensate. Together, these factors account for the lower levels of living of farmers belonging to these groups, pointing to the need for concerted and multi-faceted action.

Key Issues & Problems of Marginal & Small Farmers 10.46 While marginal and small farmers constitute an overwhelming proportion of the farmers and contribute to half the agricultural output, they confront specific constraints. Unless these are overcome, neither will these farmers be able to improve their living conditions nor will Indian agriculture achieve the required breakthrough. Some of general issues that confront marginal-small farmers as agriculturalists are: imperfect markets for inputs/products leading to smaller value realisation; absence of access to credit markets or imperfect credit markets leading to sub-optimal investment decisions or input applications; poor human resource base; smaller access to extension services restricting the decisions regarding cultivation practices, poorer access to "public goods" such as public irrigation, command area

Table 10.6: Distribution for Social Groups of Farmer Households by Land Size Category, 2003 (percent) Social Group

An Employment Strategy for Agriculture Centred on Marginal & Small Farmers

development, electricity supplies; greater negative externalities from the poor quality land and water management, etc. Many of these issues are brought out by the Farmers Survey and the Cost of Cultivation Studies and are discussed below. Some of these issues (low asset base, poor human resource base) also restrict the marginal and small farmers' access to remunerative non-farm incomes. 10.47 Recent evidence also suggests that, in many cases, their situation has worsened over time. Increasing globalisation has added an international dimension to the problems faced by these farmers. The policies of huge subsidies and protectionism, widely practised by industrialised countries, often have a negative effect on small farmers in developing countries. Nearly all industrialised countries, though having a very small proportion of their population in farming, can go to great lengths to protect their agriculture. Such policies have a devastating effect, among others, on farmers in developing countries as well as the international environment (natural, economic, political and social). In the absence of proper steps, the future of these farmers seems to be very bleak. This section draws attention to some of the key issues affecting marginal and small farmers in India today.

Land Reforms & Land Rights 10.48 In its Report on Conditions of Work, this Commission has presented strong evidence to the effect that relatively successful implementation of even a modest package of land reforms dramatically improves the prospects of the poor. Poverty in rural areas is associated with landlessness. Comparatively successful, although modest, land reforms, are able to unleash the productive potential of the rural economy and reduce poverty. Although land legislations have been amended in several states to remove the gender bias, a number of issues remain. Moreover, improving women's access to land and assets is also linked to other cultural norms and practices, which need to be simultaneously addressed. Efficient use of land is facilitated if the farmer either owns it or has a security of tenure i.e. is assured that he would continue to cultivate it in the foreseeable future. However, informal tenancy is still widely prevalent in

India, although its incidence varies from region to region. Because of the pressure on land, landless and poor tenants continued to lease-in land, but remain unrecorded tenants, without security of tenure and without the benefit of rent regulation. Tenancy reforms have had the perverse impact of driving tenancy underground, and making it more difficult for tenants to lease land on secure and reasonable conditions. One consequence of this is that there is a wide discrepancy between the extent of tenancy reported in large-scale surveys such as the NSS and more indepth micro surveys. In 2002-03, the NSSO reported that 6.5 per cent of the operated area was under tenancy. States such as Punjab, Orissa, West Bengal, Bihar, Uttar Pradesh and Andhra Pradesh recorded higher than average tenancy. From the very beginning, tenancy conditions in India have differed between the usually arid and semi-arid regions where the land-man ratio is favourable and extensive cultivation is practiced, and the other regions, where there is more intensive cultivation. In the former areas, often very small landowners prefer to lease-out land to bigger cultivators. For policy purposes, therefore, one has to recognise that the tenants are differentiated because they face different conditions and levels of insecurity. At the same time, tenants as a class also face some common issues mainly due to the difference between their de jure and de facto statuses. Besides the usual risks and problems faced by other cultivators, tenant cultivators have the additional burden of high rents. Due to the lack of documentary proof, as it is merely a verbal agreement, the tenants are deprived of any tenancy rights. This increases the hardships of tenant cultivators as lack of documentary proof keeps them outside the ambit of formal delivery system denying them access to critical inputs such as credit. Thus, rising costs of inputs and enhanced rents along with the high costs of informal leasing increases the vulnerability of the group. Studies of agrarian distress in the recent past indicate that marginal and small tenants are an especially vulnerable class, as rents in the areas of commercial agriculture go up to reflect high profitability in good years, but constitute a heavy burden in the years of distress. Apart from tenancy, the other constraint faced by these farmers is that even where they own land the record of

rights is not updated and mutations in land records are not duly recorded.

Low Level of Formal Education & Skills 10.49 Low literacy, lack of organisation and poor connectivity lead to low levels of awareness among farmers, regarding the technology usage, institutional credit schemes and sources and the government's support initiatives. There is enough evidence to suggest that the size of farmers' holdings and level of formal education are positively correlated. Since small farmers are far behind in terms of formal education, they are inherently at a greater disadvantage (Table 10.7). 10.50 Low Skills : Low levels of formal education and awareness are reinforced by low skill levels among farmer households. According to the 61st Round NSS Survey, only 1.6 per cent youth (15-29 years) in farmer households had formal skills. This percentage was lower for agriculture labour households (1 per cent) but higher for other labour households (2.2 per cent) and much higher for 'other' households (6.5 per cent). This limits the chances of farmer households to pursue remunerative non-agricultural vocations. 10.51 Low Awareness: The low level of formal education noted above and the limited public dissemination of knowledge, however, severely limits the farmers' awareness. The level of awareness among farmers

of bio-fertilizers, Minimum Support Price and the World Trade Organisation is directly related to land size as well as to social background of the farmers. Also, such awareness is associated with educational levels across the states. Kerala, Tamil Nadu and Punjab reported high awareness levels about these issues.

Farmers' Income, Consumption & Poverty 10.52 The average monthly income of farmer households comprised income from wages, net receipts from cultivation, net receipts from farming of animals and income from non-farm businesses. The average monthly consumption of farmer households comprises both total food and non-food expenditure. Estimates based on the Farmers's Situation Assessment Survey of 200203 shows that the average monthly income of all farmers at all India level is estimated at Rs. 2115, ranging from Rs.1659 for marginal farmers to Rs. 9667 for large farmers. Consumption expenditure of marginal and small farmers exceeds their estimated income by a substantial margin and presumably the deficits have to be plugged by borrowing or other means. The correlations between expenditure deficit and land size, and poverty levels among marginal and small farmers is high. Moreover, poverty and social identity are also correlated. Table 10.8 gives the incidence of poverty among the socio-religious groups and land size. The small and marginal farmers are economically worse off. But here again, there is 244

An Employment Strategy for Agriculture Centred on Marginal & Small Farmers

Note: 1. Poverty ratios are computed for workers in the unorganised sector. 2. Cases with unspecified land possessed have not been included in any class but in All. Source: NSSO 61st Round Survey on Employment-Unemployment. Computed.

differential incidence of poverty mediated by one's social identity. Size of land does help reduce poverty but there are other factors that have to do with one's social position to translate the asset position into one of wellbeing. Those belonging to SCs and STs are especially vulnerable even among these groups of farmers.

and globalisation have in fact led to a shift in cropping pattern from staple crops to cash crops like oilseeds and cotton, requiring high investment in modern inputs and wage labour, and increasing credit needs but when the prices declined farmers had no means to supplement their incomes.

Credit & Indebtedness

As discussed above, the prevalence rate of formal sources indebtedness among marginal and small farmers is much lower than among large farmers, while in the case of informal sources the reverse is true (Table 10.9). The medium and large farmers have better access to institutional sources as they are better endowed in terms of assets to offer as collaterals for loans than marginal and small farmers. Given their economic conditions, the poorer farmers, with no collateral to offer in lieu of loans and with insufficient capacity in following the required procedural formalities to access formal sources, prefer to approach the easily reachable informal sources such as the private moneylenders and traders. This increases their

10.53 Lack of access to credit: Small and marginal farmer households need credit to meet both the consumption needs to maintain subsistence levels as well as for production purposes to meet the increasing costs of cultivation. Not only do marginal and small farms rely principally on informal sources of credit, a majority of them have no or very little access to credit constraining production and investment. This situation calls for urgent measures of the kind indicated by us in NCEUS (2007a, 2007b). 10.54 Indebtedness: Increased indebtedness is noted as a major reason for the spurt in farmer suicides during recent times across a number of states. In most, if not all, such cases, the economic status of the suicide victim was very poor, being small and marginal farmers. After the Green Revolution agricultural activities have become cash based individual enterprises requiring high investment in modern inputs and wage labour. This is evident from the list of states with high incidence of farmer suicides, which are not necessarily backward or predominantly agrarian or with low income. Increased liberalisation

of their economic vulnerability and weak bargaining capacity. The entire crop of the small holders comes to the market at one time. The small cultivator, who is often heavily indebted, has poor bargaining strength to get a favourable deal from the more resourceful traders. During high price periods also, more often than not, it is the middleman who benefits. With the development of more integrated markets, led by large private players, smaller cultivators face asymmetric conditions and large transaction costs.

vulnerability and also checks their entrepreneurial initiatives to invest in agriculture to increase productivity and income levels.

Issues Relating to Land & Water Management 10.55 Land and water are the two critical resources for agriculture. The percentage of net area irrigated does not show any particular disadvantage accruing to small and marginal farmers. They are concentrated in marginal and degraded lands, lands which are at the tail-end of canal systems, or in the upper reaches of watersheds. They also suffer more from flooding and seepage than the land belonging to medium-large farmers. While large farmers capitalize on cheaper sources (e.g. higher percentage of irrigation from canals which is a cheaper irrigation option while smaller farmers have to rent water). About 40 per cent of the irrigated area in the case of farmers above 10 hectares was from canals, it was less than 25 per cent in the case of marginal and small farmers.

•

Decline of Public Marketing: The state support price system is of prime importance in protecting the interest of the farmer. However, the government's attempts to mitigate farmers' risks through measures such as the Minimum Support Price (MSP) have also not been very successful as the coverage of the scheme in terms of crops and area is small. The small farmer is thus not assured of a minimum return on his labour and investment. As Jodhka (2006) noted, public marketing services have also declined in spread and scope, again increasing the role of private traders. On the input side, the weakened public extension support system has increased the dependence of the farmer on private dealers, often resulting in inappropriate choice of crops and inputs.

•

Weak Bargaining Power: In several states, the Agricultural Produce Marketing Corporation Acts have either been amended or repealed, providing freer entry to private organised trade. Contract farming is also now being considered as a way of integrating farmers to markets. With such integration, crop diversification is likely to receive a fillip. But this may not automatically translate into higher returns to small farmers due to high transaction costs for the firms and the weak bargaining strength of the farmers, who will remain so unless the small and marginal farmers can be federated into groups.

•

Risk & Insurance: Being a nature-based activity, cultivation is highly risky. Further, in the liberalised scenario price risks have also increased (Suri 2006; Jodhka 2006). Heightened dependence on market has exposed the farmers to fluctuating price regimes, more so in the areas of commercial

Use of Farm Equipment and Modern Inputs, Access to Extension services 10.56 Input use to enhance productivity has greatly increased since the Green Revolution, which is also one of the reasons for increased cost of cultivation. Timely availability of HYV seeds and usage of fertilizers and pesticides is also important to ensure a good crop. Farmers in general, and marginal and small farmers in particular, often face problems regarding easy and timely availability and quality of these inputs as also the costs and knowledge of use of these inputs in the right quantities. Among the various inputs (pesticides, fertilizers, HYV seeds, organic manure and veterinary services), the Situation Assessment of Farmers Survey shows that only organic manure is most readily available within the village. In most cases the inputs are available in the nearest large village which is more than 2-5 kms away. Farmer households have to travel more than 10 kms for seeds and pesticides. The access to public extension services has become very weak which often resulted in inappropriate choice of crops and inputs.

Integration into Markets and Risk •

Low Remunerative Price: Marginal and small farmers are influenced by market behaviour but the prices they receive are usually very low because 246

An Employment Strategy for Agriculture Centred on Marginal & Small Farmers

farming. This is of particular concern for the small and marginal farmers who do not have the means to cope with such shocks. In case of crop failures, insurance is important. However, crop insurance has made little headway except where it is built into other transactions such as co-operative credit. Insurance is still an uncommon practice with only 4 per cent farmers having ever insured their crops. Even among farmers with insured crops, follow up and payment by insurance companies in case of crop failure is still a weak area (NSSO 2005).

Low Membership of Groups 10.57 Collective organisation for farmers may be said to be a sine qua nom for demanding and securing public services and assistance especially in the context of economic reforms that are by and large, urban oriented. Farmers' groups and co-operatives are of help to overcome diseconomies of small size and access to credit, inputs and markets. Cooperative forms of organisation has a long history in rural India especially among farmers. Yet membership of cooperatives, SHGs and other groups is very low among farmers, except in some regions, and is particularly low among marginal and small farmers.

Significance of Non-farm Income-Large Share of Non-Farm Income 10.58 The contribution of farmers' off-farm income to total income is usually inversely related to the farm size. In case of small farmers, the insufficient levels of income from farm alone and higher man-land ratio forces them to look for avenues of income other than agriculture. The smallest category of farm households relies mainly on wage incomes to supplement incomes from cultivation. As per the Farmer's Survey,, 54 per cent income is from wage income and only 26 per cent is from cultivation among the marginal farmer households. The share of income from animal farming (5.5 per cent) is also the highest for this category of farmers. Among small farmers, 56 per cent of the income is from cultivation while 30 per cent is from wages.

Approach of the Commission & Recommendations 10.59 The present constraints on Indian agriculture stem from systemic issues, which include the macro-

policy environment. These constraints have seriously affected the degree of public support received by agriculture in investment, credit, extension services, R&D, and so on. This neglect has been most prominent in the case of marginal and small farmers. In the Commission's view, marginal and small farms are the backbone of Indian agriculture. These farmers face various disadvantages while dealing with the markets. At the same time, the Commission's analysis clearly brings out that government interventions also tend to be less effective with respect to these categories of farmers. The Commission feels that there is need for a focused strategy with respect to marginal and small farmers. Organisationally, such a strategy must focus on group approaches so that the required transaction costs can be reduced and farmers can benefit from economies of scale. The Commission has therefore advocated the setting up of a special programme for marginal and small farmers in order to incentivise the formation of farmers' groups and apex organisations, and facilitate finding solutions to problems of irrigation, inputs, markets, procurement and risk. Also the risk factor has to be mitigated through appropriate farming strategies as well as adequate insurance. There is the need for insurance instruments that cover for production and also for market risks for all crops to reduce the financial risks and increase viability.

Special Programme for Marginal & Small Farmers 10.60 The underlying idea of a special programme was to build capacity of small-marginal farmers through a group-based approach in the proposed Special Programme. The group-based approaches have shown to make a significant impact on the agricultural outcomes for marginal-small farmers, while also enabling them to access credit and other resources, and to undertake nonfarm activities. The main objectives of this programmes was (i) to improve the income prospects of marginalsmall farmers from agriculture, (ii) to improve the skill base of marginal-small farmers in both agricultural and non-agricultural activities (iii) to provide such farmers with income earning opportunities in the non-farm sector (iv) to ensure that the needs of the marginal and small farmers are adequately reflected in other agricultural and 247

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development programmes and their access to these programmes in order to strengthen their livelihood security.

and block levels, and by promoting training of trainers and training of the farmers. Such groups will be the basic units for this intervention and grass-roots agencies will enable them to link up with the existing facilities and programmes.

Principal Activities Proposed under the Special Programme (a)

Promotion of Marginal-Small Farmers' Groups: One of the first and important functions of the Programme will be the promotion of marginal and small farmers' self-help groups. The Special Programme proposes setting up of Marginal and Small Farmers' Development Society (MSFDS) for promotion, capacity building and coordination of development of marginal and small farmers' groups. This society will be formed at the district level under the Charitable Societies Act, headed by the collector. The Society should identify and train a team of Community Resource Persons for formation of the groups. Wherever NGOs engaged in the promotion of rural livelihoods already exist, they could play an important role in the formation of the groups.

(b)

Enabling Greater Access to Institutional Credit: Linking the marginal and small farmers' groups to banks is an essential step towards adequate flow of institutional credit to these farmers. This linking could be done on the pattern of the existing SHG-bank linkage programme. The objective is that adequate institutional credit should be able to reach all marginal and small farmers, whether owners or tenants.

(c)

Training and Capacity Building: Since farming is becoming increasingly knowledge-based, training these farmers in appropriate technical and farming practices specific to different regions becomes an urgent need. The Special Programme aims at motivating and enabling marginal and small farmers to acquire skills by establishing Community Resource Centres, by promoting activists at the village, cluster, 248

(d)

Support for Creation & Strengthening of NonFarm Activities: Given the fact that income from small farming is hardly sufficient to meet the basic needs of the farm households, it is important to strengthen and enhance their sources of non-farm income. Some of these are organically linked to farming as in the case of dairying, livestock rearing, inland fishing, food processing, weaving as in the North-east, and so on. In addition there will also be non-farm activities that could be accessed by members of the small farmer households. A number of schemes and programmes exist for rural non-farm activities such as PMEGP and SGSY.

(e)

Gender-focused Activities: Recognising that farming is increasingly feminised, the Special Programme's initiative of marginal and small farmer group formation would aim at these groups having an adequate number of women or exclusively women farmers as well. The programme would play a leading role in facilitating a gender sensitive marginal and small farmer development strateg y. These include mapping the existing role and constraints on women farmers, support and organise training and skill development programmes for women farmers. The programme should also promote joint ownership or leasing and operation, or usufructuary rights over the existing productive assets (land, trees, ponds, CPRs) as well as new ones among women farmers through SHGs, co-operatives etc.

(f )

Planning for Development of Marginal and Small Farmers: While the Special Programme would initiate the activities outlined above, the MFSDS would also

An Employment Strategy for Agriculture Centred on Marginal & Small Farmers

develop a strategy for the medium term development of marginal and small farmers. The strategy will essentially have a bottomup approach. The primary information on the nature of problems faced by these farmers, the nature of the solutions that they conceive, and the kind of interventions that they expect should be drawn up from the marginal and small farmers' groups right from the village and panchayat levels. These grass-root perceptions should be combined with an assessment of the numbers of marginal and small farmers, their spread in terms of agro-climatic specificities, the availability of infrastructure facilities including those relating to input supply and output marketing, institutions of credit, training etc. Based on this exercise, the proposed strategy would suggest locally relevant development strategies which are also sensitive to the internal socio-economic differentiation and growing feminisation of this segment of workforce, and set quantitative targets. Special stress will be laid on dovetailing the requirements of the small farmers with all the existing programmes. (g)

Financial Resources: The financial resources meant exclusively for this programme will be in addition to what is provided in the existing schemes. The total cost of this Programme would be about Rs 2000 crores per year, or an average of about Rs 3- 5 crores per district. This amount can be increased as the capacity of the MSDS to undertake activities mentioned below, or other activities entrusted to it increases. The total amount would be allocated to the states/districts in proportion to the marginal and small farmers in each area.

Improved Credit Support 10.61 The Commission is concerned with the position of institutional credit with respect to agriculture, and more so, with respect to marginal and small farmers. The share of agricultural credit in the Net Bank Credit (NBC) declined from 17 per cent in 1994 to 9 per cent in 2004.

The Government is currently seized with the issue of extending affordable credit to the agricultural sector. Banks have been asked to increase credit by 25 per cent each year, and the rate of interest has been pegged at 7 per cent. The announcement of Government Policy in 2004 requiring the doubling of agricultural credit in three years, has undoubtedly led to an increase in the volume of credit, but as a percentage of NBC it still stands at a low 11.9 per cent in 2006. As far as marginal and small farmers are concerned, the RBI does not maintain a separate record of their credit off-take but surveys such as the Farmers Survey bring out a dismal picture. The Commission is of the view, that in addition to the steps already taken by the Government and the banking system, a number of other measures need to be initiated on an urgent basis, focusing particularly on the issue of credit availability to marginal and small farmers. 10.62 The Commission has recommended the following measures as an immediate Action Plan: (1) Separate monitoring of the credit flow to this segment of farmers i.e. marginal and small farmers. (2) Change in the priority sector guidelines with a target of 10 per cent needs to be fixed for marginal and small farmers. (3) Measures to increase the outreach of the banking sector in rural areas and in areas of financial exclusion. (4) Measures to extend credit to the 20 - 40 per cent of the marginal and small farmers who are excluded from the formal financial sector due to lack of patta and title deeds. The majority of these farmers are informal tenants. The RBI has issued guidelines, following the Swarnakar Committee recommendations that such farmers be extended credit on the basis of certificates issued by the panchayats. These guidelines should be complied with by the banks and the procedures simplified to the extent necessary. However, in order to reduce the perceived risk of default of this excluded segment, as well as the larger segment of marginal and small farmers, due to which the banks do not engage these farmers actively, the Commission is of the view that the Government may set up a Credit Guarantee Fund in NABARD, on the lines of the CGF set up by the Ministry of Micro, Small and Medium Enterprises which provides guarantee cover on loans to small units. Steps are also needed to strengthen and revive the rural banking sector and co-operatives. The efforts of SHGs also need to be encouraged. 249

The Challenge of Employment in India

Emphasise Land & Water Management 10.63 In the Commission's view land and water management is the key to equitable and sustained growth in rural livelihoods. The NCF and the Steering Group on Agriculture have also stressed the need to focus on rain-fed and dry-land farming. These and various other committees have emphasised the role of efficient land and water management. The problems of land and water management as well as solutions to these problems vary from region to region -well irrigated tracts, high rainfall/rain-fed areas, flood prone areas, low rainfall/ rainfed areas, etc. These problems affect marginal and small farmers more than the bigger farmers. The Commission is of the view that the programmes of land and water management must be significantly up-scaled and an accelerated programme of watershed management should be implemented during the 11th Plan. We note that a number of studies have pointed out that the benefit-cost ratio of such a programme is high. 10.64 The Commission also views convergence of watershed development activities with other programmes as an issue of high priority. A number of activities undertaken in the Watershed Development Programme pertains to wage employment. These activities can be converged with NREGP and SGRY. Shelves of projects related to water conservation, plantation and afforestation, renovation of the existing water structures, soil conservation and structures dealing with drought should be appropriately linked to the Watershed Development Work Plans at Block level. The Watershed Development Teams should work for convergence of WDPs with NREG activities. Panchayats should be trained to ensure convergence in implementation. The Eleventh Plan has recommended preparation of district plans with activity planning for different levels of the PRIs. Integration of land and water improvement programmes should be ensured in activity mapping and in the district plans.

Farmers' Debt Relief Commission 10.65 The Commission has analysed the acute distress faced by the farmers in some parts of the country. It has also examined the reasons and impacts of the crisis on farmers. While these reasons are linked to a number of

diverse reasons, their impacts have been felt mostly by the marginal and small farmers. The access of these farmers to institutional credit being limited, they are compelled to take recourse to non-institutional sources of credit. Failure to repay these loans on time due to one or several causes of the crisis leads to the tremendous vulnerability of this group of farmers. 10.66 A major problem in these areas is that since the marginal and small farmers do not have access to institutional credit, they have to approach informal lenders to meet their credit requirement. The Commission is of the view that the Central Government could provide guidelines and assistance to states experiencing agrarian distress, both natural and market related, for setting up Farmers Debt Relief Commissions. It recommended that, as part of the relief package, the Government could extend assistance to the State Commissions on a 75:25 basis. The Debt Relief Commissions, as part of their award, should examine and institute measures which ensure the entitlement of the marginal/small farmers to institutional credit. These measures would complement the measures already announced by the Government.

Measures to Increase Access to Non-farm Employment 10.67 It is now increasingly clear that the capacity of the agricultural sector to absorb the increasing labour force is limited and there is a need to diversify to other non-farm and off-farm employment in rural areas. There is, thus, a clear need to generate more employment opportunities through rural diversification and development of off-farm and non-farm activities. An expanding non-farm sector impacts agricultural wages positively by tightening the rural wage worker market. Poor and socially backward workers also have access to it as it is not a land-based activity. Thus, even when the non-farm activity is low productive and of residual nature, it is still beneficial to the poor, for it acts as a safety-net and prevents further accentuation of poverty. From a gender point of view, home based activities may be preferred by female workers, but steps need to be taken to ensure decent conditions of work, remunerative incomes and up-gradation of skills, and scale expansion.

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10.68 Overall the expansion of the non-farm activities helps reduce poverty levels by providing employment outside agriculture at a higher remuneration. A shift of the labour force out of agriculture into the nonagricultural sector can only happen if our growth strategy generates high growth in labour intensive manufacturing and in productive services sectors. Given the limited scope for employment generation in agriculture and the increasing vulnerability of the small and marginal farmers as also of the agricultural labourers, it is imperative that the government takes initiatives to promote the expansion of both non-farm and off-farm employment opportunities in the rural areas. It must also take steps to improve the access of these vulnerable groups to these jobs through skill development and improving their capital and human asset base. All these must be done while simultaneously addressing gender and social issues. Self-employment Programmes As we have shown in our earlier reports, more than three-fifths of the unorganised workers in India are self-employed and asset ownership and operation lowers poverty in most cases. Thus, strategies, which promote self-employment and income growth of the self-employed are important components of a pro-poor development strategy in India. Four major schemes launched by the Central Government to facilitate self-employed enterprise development through easing credit flow and other assistance are the Prime Minister's Rojgar Yojana (PMRY) started in 1993, Rural Employment Guarantee Generation Programme (REGP) of the KVIC started in 1995, (together merged into the PMRY in 2008), the Swaranjaynati Gram Swarozgar Yojana (SGSY) of the Ministry of Rural Development started in 1999 and the Swaranjaynati Shahari Swarozgar Yojana (SSSY) of the Ministry of Urban Employment and Poverty Alleviation since 1997, the latter two being integrated to the previously existing self-employment schemes. These programmes are mainly in the nature of poverty alleviation schemes, with the highest average investment of Rs.50000-65000 per enterprise being available in the PMRY. Some of them follow a group enterprise or the Self-Help Group formation approach to enterprise development. These programmes have made a significant contribution in not only enhancing income levels of the

poor but have been helpful in stemming the rural and urban migration of the poor also. But they do not target those vulnerable sections who are engaged in farming and who may officially not be in the BPL category. These programmes require a focus on these sections with the additional elements of skill building as discussed below. Wage Employment Programmes and NREGA Wage employment programmes have been an important component of the anti-poverty strategy. These provide employment opportunities not only during lean agricultural seasons but also in times of floods, droughts and other natural calamities. These programmes also contribute directly to the creation of durable assets for the community. The rural infrastructure so created is expected to enhance further economic activities. Wage employment programmes also put an upward pressure on the market wage rates by attracting people to public works programmes, thereby reducing labour supply and pushing up demand for labour. The National Rural Employment Guarantee Act, 2005 (NREGA) is a major step in the direction of providing assurance and security of employment to rural workers by providing at least one hundred days of guaranteed wage employment every year to every household whose adult members volunteer to do unskilled manual work. The Act marks a historic step towards recognising and ensuring work as a right of the people. The Commission has analysed this programme in chapter 9 of this report and has made several recommendations, building on those made by it earlier. Skill Training The Commission's Report on Conditions of Work (NCEUS 2007a) and its subsequent reports on Marginal and Small Farmers and on Skill Development have highlighted the extent of education and skill deficit among rural workers in general and agricultural labourers and marginal and small farmers, in particular. The lack of education and skills also has a strong gender dimension. The low level of education and skills is a strong determinant of work status in the countryside and it is principally those at the lowest end of the education-skill spectrum who remain confined to agriculture. This is 251

The Challenge of Employment in India

unfortunate as agricultural growth itself requires new skills and further acquisition of skills is likely to prepare some part of the agricultural workforce to move out of agriculture. In order to correct this deficit, the Commission has proposed a decentralised initiative to expand skill training in rural areas which would be amply supported by the national level structures and institutions. The Marginal and Small Farmers agency proposed by the Commission will also take upon the responsibility of coordinating skill development programmes for the target group viz. marginal and small farmers.

Land Reform 10.69 There is strong evidence that relatively successful implementation of even a modest package of land reforms dramatically improves the prospects of the poor. Poverty in rural areas is associated with landlessness and comparatively successful, although modest, land reforms are able to unleash the productive potential of the rural economy and reduce poverty. We are therefore of the view that there is a strong continuing case for redistributive land reforms viz. one which improves the access of the rural poor to land through expropriation and distribution of ceiling surplus lands and cultivable wastelands, tenurial reform and better operation of the land-lease market and the land sales market. However, these reforms will succeed in their intent only if supportive policies and institutions are in place, such as those mentioned in the preceding paras, which allows the rural poor to access new technologies and economies of scale in marketing, wherever necessary. Large gains for poor farmers could still ensue if the tenancy market is liberalised, subject to the existing land ceiling and effective regulation to promote long-term tenancies and reasonable rents. The land sales market is very sluggish in poor regions and could be used to promote transfers to the land poor through long-term loans. The updating and computerisation of land records is bound to lower transaction costs in effecting land mutations, but the specific impact on the poor needs to be investigated in greater detail.

10.70 Gender concerns in land reform have only been highlighted in the last few years. In land distribution programmes, deeds (pattas) are being given in the name of women only or in the joint names of wife and the husband. Priority is also being given to distributing land to widows. Land legislations have been amended in several states to remove the gender bias, but a number of issues remain. Moreover, improving women's access to land and assets is also linked to other cultural norms and practices, which need to be simultaneously addressed. Self-help groups have provided other mechanisms to improve women's access to land (through individual or joint leasing and cultivation of land), which needs to be carefully nurtured. 10.71 The Commission supports the implementation of the following land reform measures on a priority basis: •

Ownership and Land Control Rights for Women: Since women do not usually have ownership rights, the report has calls for promoting such rights through joint ownership and pattas, as well as other forms of production such as tree pattas and cooperative model of production which give women greater control.

•

Land Reforms: Redistributive land reforms viz. one which improves the access of the rural poor to land through expropriation and distribution of ceiling surplus lands and cultivable wastelands (with priority being given to homestead land), tenurial reform and better operation of the landlease market and the land sales market. The latter will help to align the ownership and control of land to the actual cultivators, improving cropping intensity and the efficiency of cultivation.

•

Tenancy Reforms: As most tenancies are unrecorded, the share of recorded tenancy is almost negligible, 0.74 per cent in 2003, which has declined from 1.31 per cent in 1991-92. This goes to show that the tenant cultivators are highly vulnerable. It is clear that a new round of tenancy reform should be high on the policy agenda. The Tenth Plan and the Eleventh Plan have already suggested that tenancy should be legalised subject to the ceiling

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limit already specified in law, security of tenure should be encouraged and the new law should protect the rights of both landowners and tenants. At the same time, banks should not insist on copies of land records for credit purposes. •

Tenancy Security: Tenancy security should be seen as a basic requirement for both livelihood security of the poor farmers as well as agricultural development especially in a situation where the employment transformation to non-agricultural employment has been very slow. In any case, the addition to the rural labour force will be quite significant as to warrant the intensification of employment creation in the non-farm sector. The issue of insecurity of tenants vary across the states but its incidence is greater in Eastern and Central India (Bihar, Eastern UP, Madhya Pradesh, Chattisgarh, Jharkhand and Orissa) such that these states need to take it up on a priority basis.

Conclusion 10.72 The agricultural sector is the largest component of India's informal economy and continues to absorb a large part of the growing workforce, especially the women. But since worker productivity in agriculture has been growing at a slower rate than in the other sectors, the disparity between the incomes of agricultural and non-agricultural workers is steadily increasing. This calls

for a three-pronged strategy, focusing on increasing growth and productivity in agriculture; simultaneously enabling agricultural workers to engage in remunerative non-farm activities; and providing a minimum level of social protection and income security to agricultural workers including wage workers. This chapter has focused on the first two prongs of this strategy. 10.73 The agrarian sector has been subject to enormous vicissitudes in the last decade and a half which also manifested itself in the form of an acute agrarian crisis and farmers' suicides in some parts of the country. The expected gains of the reform did not translate into higher growth of the sector and higher farmer incomes. Public investment in agriculture declined and institutional support structures weakened. Recent measures have stepped up support to agriculture in ways that we have summarized in this chapter and this has yielded some positive results. However, many of these measures need to be strengthened further in the directions spelt out in this chapter. Moreover, support to the sector does not equally translate itself into support for the bulk of farmers who are marginal or small. These farmers need a focused approach which can improve their incomes from farm and nonfarm activities. The Special Programme and the other measures proposed by this Commission can, in our view, form the basis of improving the prospects for these households.

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11 The World of Micro Enterprises :

Characteristics and Constraints Introduction 11.1 From an informal economy perspective, we have seen earlier that more than half the workers are classified as ‘self employed’ meaning thereby that they earn a livelihood by employing themselves in a variety of activities. These include (a) those who are classified as ‘own account workers’ where there are no hired workers and run by self with or without the help of unpaid family members and, (b) those who engage in economic activities with hired workers but less than ten total workers . In agriculture, such selfemployed persons are by and large nothing but marginal and small farmers about which we dealt with in the earlier chapter. 11.2 The second large segment in this universe of self employed consists of those who are engaged in non-farm activities. The only source of information to provide a macro picture of this universe is the Economic Census conducted by the Central Statistical Organisation, the latest one being for the year 2005. However, this census is nothing more than a listing of all non-crop units of production and services in the country with information collection confined to number of workers. For our purposes of detailed analysis of the informal sector units, we rely on the surveys conducted by the NSSO. 254

11.3 Be that as it may, available information from the last two Economic Censuses give us an overall picture of the informal and formal sector enterprises and its employment (see Table 11.1). The striking picture that emerges from this information is that India, a growing and large economy, is indeed dominated by a large number of very small units of production and services. Earlier we had seen that 84 percent of producers in agriculture are small and marginal farmers contributing a little over half the agricultural output. In non-farm activities 89 percent of enterprises and establishments are unorganised sector enterprises employing less than ten workers. They account for nearly twothird of the employment in this sector. As this Commission reported in its Report on Definitional and Statistical Issues (NCEUS 2008a) they contributed to 30 percent of the non-farm output. This single piece of empirical information is sufficient to convey the dominance and contribution of the informal sector, both in terms of output and employment – and more so the latter – in the Indian economy whether viewed from an all-economy perspective or sector-wise. It would indeed be instructive for the policy makers to reflect as to how much of public expenditure, public systems and public policy are devoted to this vast segment of the Indian economy where majority of Indians depend for their livelihood.

The World of Micro Enterprises : Characteristics and Constraints

Table 11.1: Distribution of Enterprises and Employment by Economic Activity and Type in 1998 and 2005 (Total figures in million and Sectro-wise break-up in per cent) Category

Enterprises All

Employment

Informal

Formal

All

Informal

Formal

100.90 (83.31)

65.85 (50.25)

35.05 (33.06)

Total Economy Total Total Economy Agriculture

41.83 (30.35)

37.25 (27.18)

4.58 (3.17)

100 (100)

89.05 (89.55)

10.95 (10.45)

100 (100)

65.26 (60.31)

34.74 (39.69)

14.54 (11.45)

14.03 (11.27)

0.50 (0.18)

10.82 (8.10)

9.70 (7.57)

1.11 (0.53)

Industry

21.02 (19.43)

19.69 (18.17)

1.33 (1.26)

27.00 (29.09)

16.99 (14.97)

10.01 (14.12)

Services

64.44 (69.12)

55.32 (60.11)

9.12 (9.01)

62.18 (62.81)

38.57 (37.77)

23.61 (25.03)

Rural Economy Rural Total Rural Economy

25.54 (17.71)

22.25 (15.44)

3.29 (2.27)

52.06(39.90)

35.83 (26.18)

16.24 (13.73)

100 (100)

87.11 (87.19)

12.89 (12.81)

100 (100)

68.82 (65.60)

31.18 (34.40)

Agriculture

22.36 (18.08)

21.59 (17.80)

0.77 (0.27)

19.54 (15.37)

17.59 (14.46)

1.95 (0.91)

Industry

21.28 (21.11)

19.90 (19.99)

1.38 (1.12)

27.80 (31.36)

18.36 (18.04)

9.45 (13.32)

Services

56.37 (60.81)

45.62 (49.39)

10.75 (11.42)

52.66 (53.27)

32.87 (33.10)

19.78 (20.16)

48.84(43.41)

30.02 (24.07)

18.81(19.34)

Urban Economy Urban Total

16.29 (12.64)

15.00 (11.74)

1.29 (.90)

Urban Economy

100 (100)

92.08 (92.87)

7.92 (7.13)

100 (100)

61.48 (55.45)

38.52 (44.55)

Agriculture

2.28 (2.17)

2.19 (2.12)

0.09 (0.05)

1.51 (1.42)

1.30 (1.24)

0.22 (0.18)

Industry

20.62 (17.07)

19.36 (15.62)

1.26 (1.46)

26.15 (27.01)

15.53 (12.15)

10.61 (14.86)

Services

77.10 (80.76)

70.53 (75.13)

6.57 (5.63)

72.34 (71.57)

44.65 (42.07)

27.70 (29.50)

Note :

Computed as per NCEUS definition of Informal Sector as Proprietary and Partnership enterprises with <10 workers. All others are classified as Formal Sector. 1998 Economic Census Figures are given in brackets. Source : Economic Census 1998 and 2005.

11.4 In India, policy making right from the First Five Year Plan did indeed take note of the existence of this vast sector both in agriculture and non-agriculture. However, the focus in the non-farm sector has been with reference to ‘village’, ‘tiny’ and ‘small scale’ industries that comprised both unorganised sector enterprises and somewhat larger enterprises. Secondly and understandably, manufacturing received much more attention than service sector units. Thirdly and importantly, the definition of ‘tiny’ or ‘small scale’ has always been with reference to capital investment without reference to employment. 11.5 The realization that the lower segment in the small scale sector needs special focus as the somewhat larger (but small scale) units might have been the beneficiary of various government policies and programmes has led to the carving of a separate category called ‘micro enterprises and establishments’

with an investment ceiling of Rs.25 lakh and below. This has now been explicitly incorporated in the Micro, Small and Medium Enterprise Development Act of 2006. Ideally a definition in terms of capitallabour ratio would have captured both the investment and employment dimensions. In practice, however, fortunately, the Commission has noted a remarkable overlap between the investment definition given in the MSMED Act of 2006 and Commission’s own definition of informal sector enterprises as proprietary and private enterprises employing less than ten workers. Estimates from the Third Census of Small Scale Industries conducted by the then Ministry of Small Scale Industries (now known as Ministry of MSME) show that 98 percent of units with less than Rs.25 lakh investment in plant and equipment also employ less than ten workers. This overlap is very large indeed

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as far as manufacturing units are concerned (which is why in this chapter we speak of micro enterprises) but is less extensive for services sector, since the current definition of micro enterprises covers only a small segment of this sector. 11.6 The data base that provides information that is most amenable to analysis is that of the NSSO Surveys of Unorganised Manufacturing and Services. At the aggregate level, this database provides information on all enterprises which are not registered under the Factories Act of 1948, out of which the Commission has extracted information according to the definition of informal sector given above, which in manufacturing, as we have stated is also more or less coterminous with micro enterprises. In this chapter, we identify characteristics of the sector as a whole and then attempt to present a disaggregated picture of structural features of the unorganised enterprise sector at an industry level and by location as a prelude to our discussion on the problems and prospects for development. It also compares the AllIndia picture with that of the states. We also discuss the linkages between micro enterprises and large enterprises in the form of emerging subcontracting relationships. 11.7 The following analysis is based on unit level st th nd data from the NSS 51 , 56 and 62 Rounds on Unorganised Manufacturing for the years 1994-95, 2000-01 and 2005-06, respectively. It also presents information for 2001-02 for the services sector from th the NSS 57 Round on the Unorganised Service Sector in India. But we must point out here that this survey of the service sector left out an important segment (i.e., ‘trade and finance’) which roughly account for 1 13.4 percent of the self employed in this sector and 10 percent in the informal sector as a whole. Again, at the time of preparing this report, this is the only year for which such data are made available. Given the increasing importance of the service sector, as the 1

largest in terms of its contribution to national income and the growth performance, the absence of regular collection of data on its performance is indeed glaring. This is not just for the informal sector but more so for the formal sector. As the Commission stated in its Report on Definitional and Statistical Issues Relating to the Informal Economy (NCEUS 2008a), the absence of an annual survey of service sector establishments in the formal sector is a major limitation in analyzing and understanding the performance of the Indian economy as well as comparing it with that of the informal sector.

Micro Enterprises in Rural and Urban Areas 11.8 The manufacturing segment of the microenterprises sector in India consisted of almost 17 million enterprises in 2005-06, this having increased drastically by about 4.5 million enterprises in slightly over a decade as Table 11.2 shows. This sector is located mostly in rural areas (71%), but with the rural preponderance having reduced in the period 1994-95 to 2005-06, signaling a sharp growth in the urban informal manufacturing sector between the midnineties and the first five years of the twenty first century. 11.9 The sector employed more than 32 million people in 2005-06, this having gone up by more than five million from 1994-95. The rural domination is true of employment in the sector as well although to a smaller extent than the share of microenterprises. The urban informal sector thus employs a larger share of the workforce (34%) than its share of enterprises (29%). 11.10 It may be seen at a preliminary level, therefore, that the micro enterprise manufacturing sector in India is substantial and has been growing over time. In relative terms, this is seen more prominently in urban areas, though the sector is still overwhelmingly located in rural areas.